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Market Income, Actual Income and Income Distribution in Indonesia 1

In: Other Topics

Submitted By mia1rab
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Market Income, Actual Income and Income Distribution in Indonesia 1

Kunta W.D. Nugraha
PhD Candidate in Economics, Faculty of Business and Government, University of Canberra, Australia (Kunta.Nugraha@canberra.edu.au)

Phil Lewis
Professor of Economics, Centre for Labour Market Research, University of Canberra, Australia (Phil.Lewis@canberra.edu.au)

ABSTRACT
Even though Indonesia has experienced high economic growth around 5 percent since 2000, many people are still living in poverty. To be able to effectively use taxes as a redistribution tool, it is important to understand which segments of the population are most affected by government taxation. This paper evaluates household income, income tax and income distribution in Indonesia. Income distribution is measured by both the Gini coefficient and dispersion of household income groups. A broad definition of household income, including both cash and non-cash income is used to obtain more an accurate measure of actual income affecting living standards. Household income is defined as market income, net income and actual income. Transfer in-kind and consumption of own production are added on household income to obtain actual income. We find that income distribution improves after accounting for income tax and after addition of transfer in-kind and consumption of own production in household income. The results suggest that using only market income to measure income distribution in Indonesia is misleading. The results are highly relevant to Indonesia‟s policy makers promoting better policies and sounder public accountability.

Keywords: market income, actual income, income tax, income distribution, transfer in kind, consumption of own production

1

The authors are grateful to Dr. Tesfaye Gebremedhin and Dr. Muni Perumal (Faculty of Business and Government, University of Canberra) for valuable and helpful...

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