•  
  •  
 

Abstract

The COVID-19 crisis has devastatingly affected social and economic sectors, including service or tertiary sectors such as banking, insuran;ce, hospitality, telecommunications, and industrial services. The pandemic has also aggravated fiscal conditions along with the slowing economy. This paper aims to assess the impact of COVID-19 on local own-source revenue in regions with dominant tertiary sectors and to examine how a fiscal incentive policy can increase the local own-source revenue. We applied the difference-in-difference panel random effect method by estimating total revenue and local own-source revenue as the outcome variables. The treatment variable is the districts/cities with dominant tertiary sectors of more than 40%, while the control variable is otherwise. The time variables comprise 2018-2019 (before the COVID-19 crisis) and 2020 (at the time of the COVID-19 crisis). The results show that the COVID-19 pandemic causes a decline in total revenue by 2.18%. However, the local own-source revenue increases by 4.62%. In addition, the cross-sectional method was employed to observe the effect of fiscal incentives on local own-source revenue. The results indicate that fiscal incentives, albeit not statistically significant, increase local own-source revenue by 25.7%. It implies that the role of incentives is not yet optimal. The local revenue recovery is mostly due to the large tax base in the tertiary economic regions.

References

[1] Afonso, A, & Furceri, D 2010, ‘Government size, composition, volatility and economic growth’, European Journal of Political Economy, vol. 26, no. 4, pp. 517-532.doi: https://doi.org/10.1016/j.ejpoleco.2010.02.002.

[2] Antunes, B 2020, Services sector vital to COVID- 19 economic recovery, United Nations Conference on Trade and Development, viewed 10 January 2021, .

[3] Bank Indonesia 2020, Synergize to build optimism for economic recovery: Overview, viewed 7 January 2021 .

[4] Blanchard, O, Philippon, T & Pisani-Ferry, J 2020, ‘A new policy toolkit is needed as countries exit COVID-19 lockdowns’, PIIE Policy Briefs 20-8, Peterson Institute for International Economics, viewed 7 January 2021 .

[5] BPS-Statistics Indonesia 2019, [Seri 2010] PDB seri 2010 (milyar rupiah), 2022, viewed 10 January 2021 .

[6] BPS-Statistics Indonesia 2020, [Seri 2010] Laju pertumbuhan PDB seri 2010 (persen), 2020, viewed 10 January 2021, .

[7] Brewer, TL, & Young, S 1997, ‘Investment incentives and the international agenda’, The World Economy, vol. 20, no. 2, pp. 175-198. doi: https://doi.org/10.1111/1467- 9701.00065.

[8] Budiman, NA, Indaryani, M, & Mulyani, S 2020, ‘Dampak Covid-19 dan pemanfaatan insentif pajak terhadap keberlangsungan usaha pada UMKM tenun Troso Jepara’, Jurnal Manajemen dan Keuangan, vol. 9, no. 3, pp. 276-285. doi: https://doi.org/10.33059/jmk.v9i3.3035.

[9] Chernick, H, Copeland, D, & Reschovsky A 2020, ‘The fiscal effects of the COVID-19 pandemic on cities: An initial assessment’,National Tax Journal, vol. 73, no. 3 pp. 699- 732. doi: https://doi.org/10.17310/ntj.2020.3.04.

[10] Clemens, J & Veuger, S 2020, ‘Implications of the Covid-19 pandemic for state government tax revenues’, NBER Working Paper, 27426, National Bureau of Economic Research. doi: 10.3386/w27426.

[11] Dadayan, L 2020, State revenue forecasts before Covid-19 and directions forward, Urban Institute & Brookings, viewed 10 January 2021, .

[12] DDTCNews 2020, 23 May, Ini insentif pajak di kota dan kabupaten yang terapkan PSBB, viewed 7 January 2021, .

[13] European Commission 2021, ‘The sectoral impact of the Covid-19 crisis’, Technical note for the Eurogroup, Directorate General Economic and Financial Affairs, viewed 10 January 2021, .

[14] Gertler, PJ, Martinez, S, Premand, P, Rawlings, LB, & Vermeersch, CMJ 2016, Impact evaluation in practice (2nd edition), Inter-American Development Bank and World Bank.

[15] Halimatussadiah, A, Cesarina, A, Siregar, AA, Hanum, C, Wisana, D, ....., & Sofiyandi, Y 2020, Thinking ahead: Indonesia’s agenda on sustainable recovery from COVID-19 pandemic, Institute for Economic and Social Research Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI) and Ministry of National Development Planning/National Development Planning Agency (BAPPENAS), viewed 10 January 2021, .

[16] Hammond, GW, & Tosun, MS 2009, ‘The impact of local decentralization on economic growth: Evidence from U.S. counties’, IZA Discussion Paper, 4574, IZA - Institute of Labor Economics, viewed 10 January 2021, .

[17] Hoekstra, AY 2015, ‘The water footprint of industry’, In JJ Klemeš (Ed.), Assessing and measuring environmental impact and sustainability (pp. 221-254). Butterworth-Heinemann. doi: https://doi.org/10.1016/B978- 0-12-799968-5.00007-5.

[18] IMF 2020, Challenges in forecasting tax revenue, Fiscal Affairs Department, International Monetary Fund, viewed 7 January 2021 .

[19] Investment Coordinating Board 2021, 25 January, ‘BKPM capai target investasi 2021. Bahlil: Luar Jawa lampaui Jawa’, Siaran Pers BKPM, BKPM, viewed 10 January 2021, .

[20] KPPOD 2017, Insentif investasi: Pemacu pertumbuhan, Komite Pemantauan Pelaksanaan Otonomi Daerah, viewed 10 January 2021 .

[21] Lance, PM, Guilkey, DK, Hattori, A, & Angeles, G 2014, How do we know if a program made a difference? A guide to statistical methods for program impact evaluation, MEASURE Evaluation, viewed 7 January 2021 .

[22] LPEM FEB UI 2020, ‘Bertahan di tengah guncangan pandemi COVID-19’, Macroeconomic Analysis Series: Indonesia Economic OutlookTriwulan II-2020, Lembaga Penyelidikan Ekonomi dan Masyarakat Fakultas Ekonomi dan Bisnis Universitas Indonesia, viewed 10 January 2021, .

[23] Makin, AJ, & Layton, A 2021, ‘The global fiscal response to COVID-19: Risks and repercussions’, Economic Analysis and Policy, vol. 69, pp. 340-349. doi: https://doi.org/10.1016/j.eap.2020.12.016.

[24] McDonald, B, & Larson S 2020, ‘Implications of the coronavirus on sales tax revenue and local government fiscal health’, Journal of Public and Nonprofit Affairs, vol. 6, no. 3, pp. 377-400. doi: https://doi.org/10.20899/jpna.6.3.377- 400.

[25] Miyazaki, T 2016, ‘Intergovernmental fiscal transfers and tax efforts: Evidence from Japan’, MPRA Paper, 74337, Munich Personal RePEc Archive, viewed 10 January 2021, .

[26] NACo, 2020, Analysis of the fiscal impact of COVID- 19 on county finances, National Association of Counties, viewed 10 January 2021 .

27] OECD 2003, Checklist for foreign direct investment incentive policies, Organisation for Economic Co-operation and Development, viewed 10 January 2021 .

[28] OECD 2020, OECD Economic Outlook, Volume 2020 Issue 1, No. 107, OECD Publishing. doi: https://doi.org/10.1787/0d1d1e2e-en.

[29] Potia, A, & Dahiya, K 2020, Optimistic, digital, generous: COVID-19’s impact on Indonesian consumer sentiment, McKinsey & Company, viewed 10 January 2021 .

[30] Qibthiyyah, RM 2021 ‘Province and local finances in Indonesia during Covid-19 pandemic’, LPEM-FEBUI Working Paper, 059, viewed 10 January 2021 .

[31] Rephann, T 2020, COVID-19 economic and tax revenue impacts: estimates for the commonwealth of Virginia and localities, Center for Economic and Policy Studies Weldon Cooper Center for Public Service University of Virginia: Virginia, VA, USA, viewed 10 January 2021 .

[32] Sparrow R, Dartanto, T, & Hartwig, R 2020, ‘Indonesia under the new normal: Challenges and the way ahead’, Bulletin of Indonesian Economic Studies, vol. 56, no. 3, pp. 269-299. doi: https://doi.org/10.1080/00074918.2020.1854079.

[33] Spilimbergo, A, Symansky, S, Blanchard, O, & Cottarelli, C 2008, ‘Fiscal policy for the crisis’, IMF Staff Position Note SPN/08/01, International Monetary Fund, viewed 10 January 2021 .

[34] Tempo.co 2020, 30 April, Corona, pendapatan negara diprediksi turun 10 persen dari target, viewed 10 January 2021, .

[35] The Center for State Policy Analysis 2020, Estimating the shortfall in Massachusetts tax revenues, viewed 10 January 2021 .

[36] The Council of State Governments 2020, COVID-19: Fiscal impact to states and strategies for recovery: A report by The Council of State Governments, viewed 10 January 2021 .

[37] UNCTAD 2004, ‘Incentives’, UNCTAD Series on Issues in International Investment Agreements, UNCTAD/ITE/IIT/2003/5, United Nations Conference on Trade and Development, viewed 10 January 2021, .

[38] Zhao, B 2020, ‘Forecasting the New England States’ tax revenues in the time of the COVID-19 pandemic’, Current Policy Perspectives, Federal Reserve Bank of Boston, viewed 10 January 2021 .

Download

Share

COinS