Estimating the Distributional Impacts of the COVID-19 Pandemic and the Remedial Tax and Benefit Policies in Indonesia

Abstract

The Government of Indonesia acted quickly to protect people from the financial impact of the COVID-19 pandemic and associated lockdown measures in 2020. Using a static tax and microsimulation model for Indonesia with adjusted datasets to reflect the economic shock throughout 2020, we explore how the pandemic affected people’s earnings in Indonesia, the extent to which the automatic stabilisers that were already built into the tax and benefit system cushioned the economic shock, and how the augmented or new benefit policies served to further cushion the shock. We estimate that in 2020 the additional policies meant that poverty rose from 6.8 percent to a maximum of 8.3 percent rather than to 10.7 percent if they had not been introduced. We discuss reasons why the official poverty estimates for 2020 are higher than those generated in this study.