TY  - JOUR
AU  - Henderson, J. Vernon
AU  - Kuncoro, Ari
TI  - Corruption in Indonesia
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10674
PY  - 2004
Y2  - August 2004
DO  - 10.3386/w10674
UR  - http://www.nber.org/papers/w10674
L1  - http://www.nber.org/papers/w10674.pdf
N1  - Author contact info:
J. Vernon Henderson
Department of Geography
London School of Economics
Houghton Street
London UK  WC2A2AE
Tel: 0207 955 6180
E-Mail: J.V.Henderson@lse.ac.uk

Ari Kuncoro
E-Mail: arik@cbn.net.id
M2  - featured in NBER digest on 2005-01-01
AB  - Bribes by firms in Indonesia arise principally from regulations --licenses and levies --imposed by local government officials. Regulations generate direct revenues (fees) plus indirect revenues in the form of bribes. The expected value of the latter is capitalized into lower salaries needed by localities to compensate public officials. Localities in Indonesia are hampered by insufficient revenues from formal tax and transfer sources to pay competitive salaries plus fund  demanded' levels of public services, because local tax rates are capped by the center and inter-governmental transfers are limited. Thus the direct and indirect revenues from local regulations are critical to local finances. The paper models and estimates the key aspects of corruption -- the relationship between bribes, time spent with local officials, and different forms of regulation. It models how inter-jurisdictional competition for firms limits the extent of local regulation and how greater sources of tax or inter-governmental revenues reduce the need for regulation and corruption. The paper estimates a large reduction in regulation in better funded localities. The findings are directly relevant to Indonesia where corruption is high and the country is in the throes of major decentralization and local democratization efforts.
ER  -