Corruption, Governance, and Inequality in Indonesia Mayang Rizky, Ahmad Zuhdi, Veto Tyas, Teguh Dartanto Forum Kajian Pembangunan 31 October 2017
Outline Background Stylised Facts Empirical Evidence Preliminary Conclusion
Decentralisation Responsibility to manage its fiscal capacity; assume it brings government closer to the people; improving efficiency; matching local preference. 35 34 33 32 31 30 29 28 27 26 Provinces Districts 600 500 400 300 200 100 0 1999 2001 2003 2005 2007 2009 2011 2013 2015 1999 2001 2003 2005 2007 2009 2011 2013 2015 Number of provinces Number of districts
Inequality during decentralisation The rise in inequality is predominantly visible in democratisation period, as before it was relatively stable (Yusuf, 2017). 9 8 7 6 5 4 3 2 1 0 Growth, Inequality, and Poverty in Indonesia (%) 8 36 33 4 18 8 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 45 40 35 30 25 20 15 10 5 0 Source: BPS, Bappenas. ------Target Growth Gini Index Poverty Rate
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 (Dartantoet 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 (Sumartoet al, 2004) and on growth and HDI (Patunru and Rahman, 2014).
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. Score 5 4.8 4.6 4.4 4.2 Corruption Perception Index - Indonesia 4.84 4.52 4.12 4 3.8 3.6 2006 2008 2010
Governance index - Kemitraan Worst provinces in IGI 2012 Best provinces in IGI 2012 5 4.9 4.8 4.7 4.6 4.5 4.4 4.3 4.2 4.45 Maluku Utara 4.48 4.81 Papua Barat Bengkulu 4.87 NTT 6.9 6.8 6.7 6.6 6.5 6.4 6.3 6.2 6.1 6 5.9 6.24 6.37 6.43 6.8 Jambi DKI Jakarta Jawa Timur DI Yogyakarta
Corruption, Governance, and Inequality Corruption Perception Index Governance Index -.05 0.05.1 -.05 0.05.1 -.05 0.05.1 2 3 4 5 6 cpi 3 4 5 6 7 govindex chgini Fitted values chgini Fitted values Bureaucracy Aspect Unspent Budget -.05 0.05.1 3 4 5 6 7 8 bureauc -.5 0.5 1 silpa chgini Fitted values chgini Fitted values
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.
Regression results Changein Gini t Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Gini t-2-0.229** (0.089) CPI t-2-0.005* (0.003) -0.194** (0.084) Governance t-2-0.013*** (0.004) -0.234** (0.086) -0.006* (0.003) -0.013*** (0.004) -0.235** (0.089) -0.006* (0.004) Unspent budget t-2 0.002* (003) -0.309*** (0.090) -0.004* (0.003) -0.008*** (0.003) Average PCE t-2-0.130 (0.014) 0 of decentralisation t-2 0.199** (0.094) BPK audit t-2 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) -0.328*** (0.098) -0.004* (0.004) -0.009*** (0.003) -0.118 (0.015) 0.154** (0.127) 0.006* (0.004) 0.256* (0.212) Additional controls No No No No No Yes Observations 66 R 2 0.1204 66 0.2199 66 0.2455 66 0.1849 66 0.2769 66 0.2803
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, labourunions, 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.
On the mechanism Interaction with more governed region dummy Spending on health, education, infrastructure, social protection, PAD, and DAU: significantly negative
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.
Drawbacks Need to look at district level Measure of corruption Unspent budget equity vs efficiency Political variable: divided/unified government Obsolete year of analysis
Thank you Your comments and suggestions are welcome.