The Effect Of Regional Tax Policies On Local Economic Development

Abstract

Regional Own-Source Revenue (PAD) is largely derived from local taxes, which play a crucial role in supporting development financing and the provision of public services. An effective tax policy can stimulate local economic growth, whereas an inefficient policy may hinder investment and reduce tax compliance. In Baubau City, the management of local taxes still faces challenges such as limited data availability, insufficient socialization, and a relatively low level of taxpayer compliance. The objective of this study is to examine how local tax policies influence the development of the local economy, with particular emphasis on the Micro, Small, and Medium Enterprises (MSME) sector. Method This research employs a descriptive quantitative approach, with data collected through questionnaires distributed to employees of the Regional Revenue Agency and business actors in Baubau City. The data were analyzed using simple linear regression, t-tests, and the coefficient of determination to identify the relationship between the variables studied and to measure the extent to which local tax policies influence the local economy. Results The findings indicate that local tax policies have a positive and significant impact on the local economy, with a significance value of 0.000 < 0.05. Support in the form of tax reductions for MSMEs and investment s has been shown to encourage business growth, job creation, and increased community income. These results are consistent with fiscal decentralization theory and endogenous growth theory, which emphasize that taxes function not only as a source of revenue but also as a key instrument in driving local economic growth.