Effect of Fiscal Desentralization and Region-wide Corruption Level in Indonesia

Abstract

Many parties suspect that there is an in-between relationship of fiscal decentralization and the corruption level in the regencies and city. This study aims to examine the effect of fiscal decentralization on the city-wide corruption level in Indonesia. This study used the General Allocation Fund (Dana Alokasi Umum or DAU) of the regency and city, age of regency and city, and location of regency and city as the control variables. The population of this research is all regencies and cities in Indonesia. As the data sources, we used the secondary data. The research sample was selected using the purposive sampling method. Hypothesis testing uses multiple regression analysis, the coefficient of determination test (R 2), and partial test (t-test). The statistical test results of the significance level of fiscal decentralization of the corruption level is 0.016 smaller than the significance level of 0.05 (5%). This result shows that fiscal decentralization has a significant effect on the corruption level of regencies and city in Indonesia. The statistical significance level results for the control variable are regency and city's DAU of 0.081, age of regency and city of 0.221, and regency and city location of 1.222. This means that the DAU, age, and location of regencies and cities have no significant effect on the corruption level of regencies and cities in Indonesia.

The Role of Law Enforcement on Moderating the Relationship between Government Size, Fiscal Decentralization, Audit Finding and Corruption

“…Being viewed from the corruption case data, the regional government ranks the most corrupt state agency. This statement is supported Anan [5] and Ulum et al [38] explaining that the cause of the high number of corruption cases in Indonesia is caused by the implementation of fiscal decentralization. Thus, the formulated the hypothesis as follows:…”

“…The serious agency problems depend on the efforts of internal supervisory agencies, external oversight, the power of political leadership in controlling government at the lower levels, and the level of difference in goals between principle and agent [6]. According to Anan [5], decentralization is one of the factors contributing to the high corruption in local governments. The high number of corruption cases in local governments demonstrates the need for oversight in order to minimize corruption [14].…”

“…From the 454 cases occurred, 218 cases involved the Regency and City Governments in Indonesia [4]. Anan [5] tried to explain this phenomenon by conducting study related to corruption level of local governments. He finds that the number of cases occurring in the regions is affected by fiscal decentralization.…”

Determinants Influencing the Level of Corruption in Indonesia Local Governments

“…The Effect of Fiscal Decentralization towards Corruption Level: Blackburn et al (2006) stated that the delegation of authority by the central government to local governments causes an agency problem, which can result in corruption practice. This statement is supported by a previous study which states that decentralization is one of the factors behind the prevalence of corruption in local governments (Anan, 2019;Ko & Zhi, 2013). However, Shah (2006) states that decentralization can strengthen public accountability by involving the people to monitor the performance of local governments and demand corrective actions, including demanding authorized parties to mitigate corruption and its causes.…”

“…The data shows that the governmental institution with the highest prevalence of corruption cases are district/city local governments. Anan (2019) stated that decentralization is one of the causes of the high levels of corruption in local governments of Indonesia. Previous studies have also shown that fiscal decentralization has a significant effect towards corruption levels (Anan, 2019;Dong & Torgler, 2013;Fisman & Gatti, 2002).…”