Cash Demand Sensitivity Analysis: Estimating Post-Tax Amnesty Shadow Economy In Indonesia

Pidah Febriyanti, Herman Sambodo, Arintoko Arintoko, Meilena Sarmilasari

Abstract


In recent years, tax revenue targets in Indonesia consistently does not reach the target that has been set, largely due to the extensive shadow economy activities aimed at tax evasion. This study aims to measure the sensitivity of cash demand as a method for estimating the shadow economy across 34 provinces in Indonesia during the post-tax amnesty period from 2016 to 2022, and to evaluate its impact on potential tax losses. The methodology employed in this research is quantitative analysis with a panel data regression approach, estimated using the Random Effect Model. The shadow economy is measured using a monetary approach model, based on the sensitivity of demand for cash. The dependent variables in this study are the total demand for currency and potential taxes, while the independent variables include tax burden, inflation rate, Gross Regional Domestic Product (GRDP), financial and technological innovation represented by the use of the internet for financial purposes, and the shadow economy. The results indicate that tax burden, inflation, and financial and technological innovations do not affect cash demand, while income has a significant positive impact on cash demand. Furthermore, the shadow economy is shown to significantly impact potential tax losses. The study shows that in 34 provinces of Indonesia, the shadow economy averages IDR 292.152 billion with an average potential tax loss of IDR 35.306 billion.

Keywords: Shadow Economy, Tax Amnesty, Cash Demand, Tax, Monetary Approach Model


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