Analysis of the Effect of Value Added Tax Incentives on Residential Property Demand in Indonesia

Abstract

This study investigates the impact of a government-borne value added tax (VAT) incentive on residential property demand across Indonesian provinces from 2018 to 2023. Introduced as part of the post-pandemic recovery efforts, the policy aimed to stimulate housing demand amid declining market activity. Using provincial panel data, the analysis employs an interrupted time series approach complemented by a dynamic panel regression to capture both the immediate and delayed effects of the fiscal intervention while controlling for income, unemployment, and property prices. The findings reveal a two-stage response: an initial contraction in demand following policy implementation, thereby reflecting short-term market rigidity, followed by a sustained upward trend as economic confidence improves. The positive effect is more substantial in Java provinces, thus suggesting that regional economic structures and financial depth shape policy responsiveness. Overall, the results confirm that VAT incentives effectively bolster residential property demand and function as an important fiscal lever for stabilizing cyclical downturns. The study highlights that VAT incentives should not be viewed solely as crisis-driven measures but counter-cyclical instruments applicable when market conditions weaken.

View PDF – https://doi.org/10.53383/100419

Keywords

Tax incentives, Purchasing power, Property demand, Interrupted time series, Dynamic panel regression, Indonesia