De Jure vs De Facto Tax Enforcement: Evidence from Indonesia

In many contexts, the taxes firms and individuals pay in practice are different from the taxes they are required to pay by law. While there is extensive research on taxpayer evasion and avoidance, there is little research on the role that tax officers’ behavior and beliefs play in de facto tax enforcement. What roles do tax officers’ revenue targets and beliefs about equity and/or fairness in taxation play in their enforcement strategies, and how do taxpayer characteristics, the costs of enforcement, and/or their bosses’ views mediate them? How does differential enforcement affect horizontal and/or vertical equity, or the effective marginal tax rates taxpayers across the income distribution pay? This survey experiment investigates the effects of priming tax officers to think about equity and fairness in taxation, and/or the effect of being assigned higher tax revenue targets, on their enforcement strategies. The study estimates treatment effects in hypothetical scenarios, and investigates how this changes when tax officers are primed to think about redistribution, and when they are under pressure to raise more money. We subsequently plan to investigate tax officers’ enforcement behavior in the real world by matching survey responses to anonymized tax administrative data on tax officer monitoring and compliance activities and taxpayer filing and payments. This study is being conducted in partnership with the Indonesian government who implemented the survey as part of their regular operations.