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The Impact of COVID-19 Pandemic on Local Fiscal Revenue: Empirical Evidence from the Regions with Dominant Tertiary Sectors

Author

Listed:
  • Aisyah Nurrul Jannah

    (Master of Economic Planning and Development Policy, Faculty of Economics and Business, Universitas Indonesia, Indonesia)

  • Khoirunurrofik

    (nstitute for Economic and Social Research (LPEM) and Department of Economics, Universitas Indonesia, Indonesia)

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.

Suggested Citation

  • Aisyah Nurrul Jannah & Khoirunurrofik, 2022. "The Impact of COVID-19 Pandemic on Local Fiscal Revenue: Empirical Evidence from the Regions with Dominant Tertiary Sectors," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 68, pages 87-101, Desember.
    • Handle: RePEc:lpe:efijnl:202207
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    References listed on IDEAS

    as
    1. Jeffrey Clemens & Stan Veuger, 2020. "Implications of the COVID-19 Pandemic for State Government Tax Revenues," National Tax Journal, National Tax Association;National Tax Journal, vol. 73(3), pages 619-644, September.
    2. Riatu Mariatul Qibthiyyah, 2021. "Province and Local Finances in Indonesia during COVID-19 Pandemic," LPEM FEBUI Working Papers 202159, LPEM, Faculty of Economics and Business, University of Indonesia, revised 2021.
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    4. Afonso, António & Furceri, Davide, 2010. "Government size, composition, volatility and economic growth," European Journal of Political Economy, Elsevier, vol. 26(4), pages 517-532, December.
    5. Thomas L. Brewer & Stephen Young, 1997. "Investment Incentives and the International Agenda," The World Economy, Wiley Blackwell, vol. 20(2), pages 175-198, March.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    COVID-19; difference-in-difference method; local own-source revenue;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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