The miracle of anti-corruption efforts and regional fiscal independence in plugging budget leakage: evidence from western and eastern Indonesia

Abstract

The leakage of the Anggaran Pendapatan dan Belanja Daerah (APBD: Regional Revenue and Expenditure Budget) has been officially reported by the Corruption Eradication Commission of the Republic of Indonesia to have reached 40 per cent. The purpose of this study is to examine the effectiveness of measures to eradicate corruption and the ways that fiscal independence can stop the leakage of local governments budget in western (WI) and eastern (EI) Indonesia. This study uses the System GMM dynamic panel method and stochastic frontier analysis (SFA). The result finds that effort to eradicate corruption, such as reporting gratification can reduce budget leakage in WI and EI. The result also discovers that the public complaint has the effect of reducing budget leakage in EI, while it continues to grow in WI. Increase the status of the Audit Board (BPK's opinion) can increase budget leakage in WI and EI. Ratio of locally-generated revenue (RLGR) and ratio of transfer (RT) as fiscal independence proxies are defined as triggers for corruption in terms of budget leakage. The budget leakage is bigger in EI than WI, despite the fact that the increase in the leakage ratio the year before caused the leakage in the years that followed. Transparency efforts must continue to be encouraged for the realisation of a clean government.