Local Corruption and Popular Support for Fuel Subsidy Reform in Indonesia

Abstract

This article examines the role played by local governments in shaping resistance to reforming fiscally and environmentally disastrous fuel subsidies. Shifting from universal-access social programs, like fuel subsidies, to targeted programs requires vesting authority with local politicians and bureaucrats, whom the state relies on to identify poor households and to deliver benefits. Where local governments are corrupt, citizens find promises to replace fuel subsidies with targeted spending less credible and resistance to reform is higher. Using household survey data from Indonesia, this article finds that corruption in the implementation of targeted transfer programs increases resistance to fuel subsidy reform among the poor citizens who consume the least fuel and who stand to benefit the most from targeted programs. Findings suggest that improving capacity within subnational governments to deliver social programs is important in developing public support for reform.