T.J. Soewardi, C.F. Ananda, M. Khusaini
Tax reforms mandated by Law No 28/2009 in Indonesia had encouraged the local governments to increase their local tax capacity. From a total of eleven (11) local taxes, three (3) namely, Street Lighting, Property and Hotel and Restaurant taxes provide the highest contribution to the local revenue. Using the TSLS as a tool to analyse a sample of 38 regencies and municipalities located in the East Java Province of Indonesia, it was found that several regions in Indonesia have pro-cyclical fiscal policies which means that there is a positive effect of local taxes on its economic growth. However, it was noted that the relationship between government spending and economic growth is countercyclical. This is because local government's spending was on unproductive expenditures which do not positively influence the local economy. This paper further notes that not all local taxes could be seen as potentials for local revenue and local economic growth.
Department of Economics, Faculty of Economics and Business, Brawijaya University, MT Haryono Street No. 165, Malang, 65145, Indonesia
