Earmarking Tax for Indonesia's Economic Growth through the Education and Health Sector in the Long and Short Term Period

Abstract

The earmarking tax policy is expected to provide quality improvements as a result of the certainty of fund allocation. There are two examples of the government undertaking an earmarking tax approach in Indonesia, where 20% of funds are allocated for education, and 5% of funds are allocated for health. This measure of quality improvement can be seen from the improvement of the Human Development Index (HDI), Expected Years of Schooling (EYS), and Life Expectancy at Birth (LEB) that in turn impacts increasing economic growth (EG) during the period of earmarking tax policy in Indonesia. This research uses Path Analysis and Error Correction Model. Earmarking tax cause a negative indirect effect on EG through the education and health sector. However, in the long term, it has a positive effect on both sectors, while EYS and LEB has a negative effect. In the short term, only the health sector can increase EG.