corruption, governance, and inequality in indonesia ·  · 2017-10-31corruption, governance, and...

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Corruption, Governance, and Inequality in Indonesia Mayang Rizky, Ahmad Zuhdi, Veto Tyas, TeguhDartanto Forum Kajian Pembangunan 31 October 2017

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Page 1: Corruption, Governance, and Inequality in Indonesia ·  · 2017-10-31Corruption, Governance, and Inequality in Indonesia Mayang Rizky, ... 2006 2008 2010 Score Corruption Perception

Corruption, Governance, and

Inequality in IndonesiaMayang Rizky, Ahmad Zuhdi, Veto Tyas, Teguh Dartanto

Forum Kajian Pembangunan

31 October 2017

Page 2: Corruption, Governance, and Inequality in Indonesia ·  · 2017-10-31Corruption, Governance, and Inequality in Indonesia Mayang Rizky, ... 2006 2008 2010 Score Corruption Perception

Outline

� Background

� Stylised Facts

� Empirical Evidence

� Preliminary Conclusion

Page 3: Corruption, Governance, and Inequality in Indonesia ·  · 2017-10-31Corruption, Governance, and Inequality in Indonesia Mayang Rizky, ... 2006 2008 2010 Score Corruption Perception

Decentralisation

� Responsibility to manage its fiscal capacity; assume it brings

government closer to the people; improving efficiency; matching

local preference.

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Districts

Page 4: Corruption, Governance, and Inequality in Indonesia ·  · 2017-10-31Corruption, Governance, and Inequality in Indonesia Mayang Rizky, ... 2006 2008 2010 Score Corruption Perception

Inequality during decentralisation

� The rise in inequality is predominantly visible in democratisation

period, as before it was relatively stable (Yusuf, 2017).

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3336

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Growth, Inequality, and Poverty in Indonesia (%)

Growth Gini Index Poverty RateSource: BPS, Bappenas.

- - - - - - Target

Page 5: Corruption, Governance, and Inequality in Indonesia ·  · 2017-10-31Corruption, Governance, and Inequality in Indonesia Mayang Rizky, ... 2006 2008 2010 Score Corruption Perception

Motivation of study

� Studies on reducing inequality rely mostly on monetary aspects �economic expansion, progressive tax, social assistance.

� Corruption studies: corruption reduces the effectiveness of social assistance (Dartanto et al, 2016) and less corrupt environment is a necessary condition for the public spending to have effect on enrollment rates (Suryadarma, 2012).

� 3,099 corruption cases, 135.88 trillion rupiahs of total loss, and 13.5 trillion rupiahs of total fines during 2001-2015 (Monitor Corruption, UGM).

� Losses in public trust � business environment, tax revenue, and participation of the poor in social assistance programme.

� Governance studies: on poverty reduction (Sumarto et al, 2004) and on growth and HDI (Patunru and Rahman, 2014).

Page 6: Corruption, Governance, and Inequality in Indonesia ·  · 2017-10-31Corruption, Governance, and Inequality in Indonesia Mayang Rizky, ... 2006 2008 2010 Score Corruption Perception

Corruption perception index - TII

� There is an increased efforts to combat corruption as well as a

stronger need to completely eliminate corrupt practices in the

public sector.

4.12

4.52

4.84

3.6

3.8

4

4.2

4.4

4.6

4.8

5

2006 2008 2010

Sco

re

Corruption Perception Index - Indonesia

Page 7: Corruption, Governance, and Inequality in Indonesia ·  · 2017-10-31Corruption, Governance, and Inequality in Indonesia Mayang Rizky, ... 2006 2008 2010 Score Corruption Perception

Governance index - Kemitraan

4.454.48

4.81

4.87

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

5

Maluku

Utara

Papua Barat Bengkulu NTT

Worst provinces in IGI 2012

6.24

6.376.43

6.8

5.9

6

6.1

6.2

6.3

6.4

6.5

6.6

6.7

6.8

6.9

Jambi DKI Jakarta Jawa Timur DI

Yogyakarta

Best provinces in IGI 2012

Page 8: Corruption, Governance, and Inequality in Indonesia ·  · 2017-10-31Corruption, Governance, and Inequality in Indonesia Mayang Rizky, ... 2006 2008 2010 Score Corruption Perception

Corruption, Governance, and Inequality-.

05

0.0

5.1

3 4 5 6 7 8bureauc

chgini Fitted values

-.0

50

.05

.1

2 3 4 5 6cpi

chgini Fitted values

-.0

50

.05

.1

3 4 5 6 7govindex

chgini Fitted values

-.0

50

.05

.1

-.5 0 .5 1silpa

chgini Fitted values

Corruption Perception Index Governance Index

Bureaucracy Aspect Unspent Budget

Page 9: Corruption, Governance, and Inequality in Indonesia ·  · 2017-10-31Corruption, Governance, and Inequality in Indonesia Mayang Rizky, ... 2006 2008 2010 Score Corruption Perception

This paper

� Research questions

� Does less corruption lead to a reduced inequality?

� Does good governance lead to a reduced inequality?

� Which aspect of good governance that lead to a reduction in

inequality?

� Variables

� Outcomes = f(corruption, governance, controls)

� Outcomes: change in consumption-based Gini coefficient

� Corruption: Corruption Perception Index (CPI)

� Good governance: Governance Index (IGI), unspent budget

� Controls: degree of decentralisation, BPK audit opinion, spending on

health, education, infrastructure, and social protection, average per

capita expenditure, poverty rate.

Page 10: Corruption, Governance, and Inequality in Indonesia ·  · 2017-10-31Corruption, Governance, and Inequality in Indonesia Mayang Rizky, ... 2006 2008 2010 Score Corruption Perception

Regression resultsChange in Ginit Model 1 Model 2 Model 3 Model 4 Model 5 Model 6

Ginit-2 -0.229**

(0.089)

-0.194**

(0.084)

-0.234**

(0.086)

-0.235**

(0.089)

-0.309***

(0.090)

-0.328***

(0.098)

CPIt-2 -0.005*

(0.003)

-0.006*

(0.003)

-0.006*

(0.004)

-0.004*

(0.003)

-0.004*

(0.004)

Governancet-2 -0.013***

(0.004)

-0.013***

(0.004)

-0.008***

(0.003)

-0.009***

(0.003)

Unspent budgett-2 0.002*

(003)

Average PCEt-2 -0.130

(0.014)

-0.118

(0.015)

0 of decentralisationt-2 0.199**

(0.094)

0.154**

(0.127)

BPK auditt-2 0.006*

(0.004)

0.006*

(0.004)

Constant 0.102***

(0.032)

0.139***

(0.032)

0.160***

(0.036)

0.143**

(0.058)

0.315*

(0.181)

0.256*

(0.212)

Additional controls No No No No No Yes

Observations

R2

66

0.1204

66

0.2199

66

0.2455

66

0.1849

66

0.2769

66

0.2803

Page 11: Corruption, Governance, and Inequality in Indonesia ·  · 2017-10-31Corruption, Governance, and Inequality in Indonesia Mayang Rizky, ... 2006 2008 2010 Score Corruption Perception

Aspect of governance

� Government: not significant

� Policy making bodies consists of the executive and legislative branches.

� Bureaucracy: highly significant

� The executing body that serves as a bridge between government and the

public. Government offices and agencies at the provincial level which its key

functions in the area public service such as local revenue collection and

regulation of the local economy.

� Civil society: highly significant

� Constitutes of NGOs, associations, labour unions, education, and research

institutes with public policy advocacy function as the key.

� Economic society: not significant

� Participation of economic actors in government tender and project

implementation.

Page 12: Corruption, Governance, and Inequality in Indonesia ·  · 2017-10-31Corruption, Governance, and Inequality in Indonesia Mayang Rizky, ... 2006 2008 2010 Score Corruption Perception

On the mechanism

� Interaction with more governed region dummy

� Spending on health, education, infrastructure, social protection,

PAD, and DAU: significantly negative

Page 13: Corruption, Governance, and Inequality in Indonesia ·  · 2017-10-31Corruption, Governance, and Inequality in Indonesia Mayang Rizky, ... 2006 2008 2010 Score Corruption Perception

Preliminary conclusion

� A first step to understand the effects of corruption (perceived) on

inequality reduction.

� Also whether good governance has a role in explaining the effects.

� Less corrupt environment is important to policies on reducing

inequality especially good governance in the arena of bureaucracy

and civil society.

� A higher unspent budget (SILPA) in government budget allocation

tend to be associated with a positive change in inequality.

� Signs on degree of decentralisation are unexpected.

� Obtaining bad opinion from BPK � positively increase the change

in inequality.

� Effects may still unfold.

Page 14: Corruption, Governance, and Inequality in Indonesia ·  · 2017-10-31Corruption, Governance, and Inequality in Indonesia Mayang Rizky, ... 2006 2008 2010 Score Corruption Perception

Drawbacks

� Need to look at district level

� Measure of corruption

� Unspent budget � equity vs efficiency

� Political variable: divided/unified government

� Obsolete year of analysis

Page 15: Corruption, Governance, and Inequality in Indonesia ·  · 2017-10-31Corruption, Governance, and Inequality in Indonesia Mayang Rizky, ... 2006 2008 2010 Score Corruption Perception

Thank you

Your comments and suggestions are welcome.