The impact of corruption on local revenue in Indonesia’s fiscal decentralization era

Abstract

This research investigates the impact of corruption on local own-source revenue at the provincial level in Indonesia during the fiscal decentralization era, highlighting its significance for economic policy and governance. The study contributes to a deeper understanding of how corruption influences economic outcomes in decentralized governance systems, posing the hypothesis that corruption may facilitate economic activities by expediting bureaucratic processes. Using secondary data from the Ministry of Finance and the Corruption Eradication Commission (KPK) of Indonesia from 2017 to 2019, the study employs descriptive statistical analysis and the Pearson correlation to examine the impact of corruption levels on local own-source revenue realization. The results reveal a strong positive and statistically significant impact, suggesting that in the short term, corruption may “grease the wheel” in regions with bureaucratic inefficiencies. These findings have important implications for policymakers and practitioners, emphasizing the need to balance efficient economic processes with robust anti-corruption measures. The study contributes to the existing body of knowledge by providing empirical evidence from the Indonesian context and identifying areas for further research to explore the broader impacts of corruption within fiscal decentralization frameworks.