| Summary: | This paper examines the causal relationship between tax revenues and the
rate of economic growth in Indonesia. We want to know whether taxation in
Indonesia has discouraged economic variables as channels through which tax
revenues influence economic growth or not. In order to find the causal
relationship and analyzing the tax revenues by using Engle�Granger causality test,
we use annual data of tax revenues from 1969 until 2009, which are divided into
three categories: income tax, value added tax, and property tax. The reason to
choose Engle�Granger causality test is because there is possibility of
simultaneous causality bias between tax and economic growth. The empirical
analysis shows that income tax and economic growth has two-way causal
relationship instantaneously and in the short run. Moreover, value-added tax and
economic growth are independent. Finally, property tax and economic growth
have one-way short run causal relationship running from property tax to economic
growth and one-way long run causal relationship running from economic growth
to property tax. It can be concluded that Indonesian tax system and tax rate until
now still have positive effect on economic growth.
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