Fiscal decentralization and corruption: a case of indonesia

ABSTRACT

This paper aims to explain the relationship between decentralization and corruption in Indonesia. In doing so, this paper employs Indonesian provincial-level data from 2003 to 2018 using a Poisson model with an endogenous covariates model. The estimation result concludes that decentralization is associated with higher corruption incidence. The result remains robust using an alternative measure of decentralization. Indonesian decentralization is designed to authorize a substantial decision to the local government in prioritizing expenditures, but the primary taxing right remains with the central government. The significant power of the local government is associated with a higher incidence of corruption in the local region. Bribery and over-invoicing of public goods/services are the main cases of local government corruption in Indonesia.

KEYWORDS:

• Fiscal decentralization
• corruption
• Indonesia
• endogeneity
• Poisson

JEL CLASSIFICATION:

• H70
• H77

Disclosure statement

No potential conflict of interest was reported by the author(s).