Analysis of Optimal Tax Ratio and Efficiency of Regional Tax Revenue: A Case Study of Provinces in Indonesia

Q: How does the regional tax ratio affect economic growth in Indonesian provinces?

The study finds a substantial positive relationship between the regional tax ratio and economic growth (coefficient 71.22%, p < 0.01).

Q: Is the relationship between tax ratio and growth linear?

No. A non-linear effect appears because the squared regional tax ratio negatively impacts growth (−2067.14%, p < 0.01) beyond a certain threshold.

Q: What optimal regional tax ratio is identified, and what policy direction does it imply?

The study identifies an optimal regional tax ratio (RTMG) of 1.72% compared with an average of 1.20%. It implies that increasing the tax ratio toward the optimal level can maximize economic growth, alongside sustainable fiscal management and diversified revenue sources.

Oct 13, 2026

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This study examines how regional tax ratios influence economic growth across 34 Indonesian provinces during 2013–2022, applying a Fixed Effects Model for panel data regression. Results show a substantial positive effect of the regional tax ratio on growth (71.22%, p < 0.01), alongside a non-linear pattern where the squared tax ratio harms growth (−2067.14%, p < 0.01) after an optimal threshold. Non-tax revenue share and central transfer revenue share are also negative, while other regional revenues are positive. The estimated optimal tax ratio (RTMG) is 1.72% versus an average of 1.20%, supporting policy recommendations for sustainable management, diversification, and targeted investment.

LanguageEnglish

CategoryGeneral

FormatPDF

Pages26

Reading Time9 min

AccessFree to download

Introduction

Abstract

Keywords

Method and Main Findings

Original Paper [https://doi.org/10.15826/jtr.2025.11.1.193](https://doi.org/10.15826/jtr.2025.11.1.193) Analysis of Optimal Tax Ratio and Efficiency of Regional Tax Revenue: A Case Study of Provinces in Indonesia Yossinomita Yossinomita􀀍, Effiyaldi, Ayu Feranika, Mardiana R, Irfan Hassandi, Mira Gustiana Pangestu, Yosi Fahdillah Universitas Dinamika Bangsa, Jambi, Indonesia 􀀍 yossinomita.saputra@gmail.com ABSTRACT This study explores the impact of regional tax ratios on economic growth across 34 Indonesian provinces from 2013 to 2022, using the Fixed Effects Model for panel data regression analysis. The primary results reveal a substantial positive relationship between the regional tax ratio and economic growth, with a coefficient of 71.22%(p < 0.01) . This finding suggests that increasing the regional tax ratio can effectively promote economic growth when optimally managed. However, the study also uncovers a non-linear relationship where the squared regional tax ratio has a negative impact on economic growth, with a coefficient of-2067.14%(p < 0.01) beyond a certain threshold. This indicates that while moderate increases in the tax ratio can be beneficial, exceeding the optimal regional tax ratio may suppress investment and economic activity. Additionally, the research shows that the ratio of regional revenue from non-tax sources and the ratio of central government transfer revenues negatively affect economic growth, with coefficients of –39.63%(p < 0.01) and –11.65%(p < 0.01), respectively. Conversely, the ratio of other regional revenues demonstrates a significant positive impact on growth, with a coefficient of 9.20%(p < 0.01). The study identifies an optimal regional tax ratio (RTMG) of 1.72%, compared to an average tax ratio of 1.20% during the study period, highlighting the potential for increasing the tax ratio to approach or reach RTMG to maximize economic growth. Based on these findings, it is recommended that regional governments pursue sustainable management of the regional tax ratio, diversify revenue sources, optimize the allocation of central government transfer funds, and invest in infrastructure and human capital. Routine evaluation of fiscal policies is also advised to adjust tax strategies in response to evolving economic conditions, aiming to achieve long-term sustainable economic development. KEYWORDS regional tax ratio, economic growth, fiscal policy, panel data, Fixed Effects Model JEL H71, H77, O18, R58 УДК 336.22 Анализ оптимального налогового соотношенияи эффективности региональных налоговых доходов: исследование провинций Индонезии Йосиномита Йосиномита􀀍, Эфияльди, Аю Фераника, Мардиана Р,Ирфан Хассанди, Мира Густиана Пангесту, Йоси Фахдилла Университет Динамика Банса, г. Джамби, Индонезия 􀀍 yossinomita.saputra@gmail.com АННОТАЦИЯ В работе изучается влияние региональных налоговых коэффициентов (налогового бремени) на экономический рост в 34 провинциях Индонезии с 2013 по 2022 г. с использованием модели фиксированных эффектов для регрессионногоанализа панельных данных . Основные результаты показывают существенную © Yossinomita Y., Effiyaldi, Feranika A., Mardiana R, Hassandi I., Pangestu M.G., Fahdillah Y., 2025 74 положительную связь между региональным налоговым коэффициентом и экономическим ростом с коэффициентом 71,22 %(p < 0,01) . Этот вывод предполагает, что увеличение регионального налогового коэффициента может эффективноспособствовать экономическому росту при оптимальном управлении налоговыми поступлениями . Однако исследование также раскрывает нелинейную связь,при которой квадрат регионального налогового коэффициента оказывает отрицательное влияние на экономический рост с коэффициентом –2067,14 %(p < 0,01) за пределами определенного порогового значения . Это указывает нато, что, хотя умеренное увеличение налогового коэффициента может быть полезным, превышение оптимального регионального налогового коэффициентаможет подавлять инвестиции и экономическую

FAQs

How does the regional tax ratio affect economic growth in Indonesian provinces?

The study finds a substantial positive relationship between the regional tax ratio and economic growth (coefficient 71.22%, p < 0.01).

Is the relationship between tax ratio and growth linear?

No. A non-linear effect appears because the squared regional tax ratio negatively impacts growth (−2067.14%, p < 0.01) beyond a certain threshold.

What optimal regional tax ratio is identified, and what policy direction does it imply?

The study identifies an optimal regional tax ratio (RTMG) of 1.72% compared with an average of 1.20%. It implies that increasing the tax ratio toward the optimal level can maximize economic growth, alongside sustainable fiscal management and diversified revenue sources.

Oct 13, 2026

Upload by eBook King