DOES LESS CORRUPTION REDUCE INCOME INEQUALITY IN INDONESIA?
DOI:
https://doi.org/10.28986/jtaken.v4i2.193Keywords:
Corruption, income, inequality, ARDL, economyAbstract
It is widely believed that corruption is a cause of income inequality and a barrier to successful its eradication. It undermines the efforts of developing countries, including Indonesia to alleviate income inequality. It is also argued that the increased inequality caused by corruption worsens the position of the poorest people in a society as it reduces public resources available for social spending of government. Besides, corruption might harm the quality and quantity of public services, such as education and health services. This study is designed to know the long-run and short-run impacts of corruption on the inequality of income. The study uses secondary data from World Bank and Transparency International then Auto-Regressive Distributed Lag (ARDL) and dynamic Error Correction Model (ECM) during the year 1995-2017. The results of the study indicate that corruption has significant effects on the level of income inequality both in the short and long run. The negative implication of corruption on citizens' life is a major disaster in the economy and harmful to the growth and development of the people in Indonesia particularly, and the economy in general. The simple Pearson correlation findings also indicate that corruption has significant distributional consequences by affecting government expenditures. Therefore, the rise of corruption increases income inequality as it reduces the effectiveness of government spending on education, health, and final consumption for society. Thus, it can be concluded that for the Indonesian context, and increased inequality due to corruption has worsened the position of the poorest as fewer resources available for social spending.
References
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Dickey, D. A., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49(4), 1057-1072.
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Li, H., Xu, L. C., & Zou, H. F. (2000). Corruption, income distribution, and growth. Economics and Politics, 12, 155-182.
Li, H., & Zou, H. (2002). Inflation, growth, and income distribution: a cross country study. Annals of Economics and Finance, 3, 85-101.
Mauro, P. (1995). Corruption and growth. Quarterly Journal of Economics, 110(3), 681-712. doi: 10.2307/2946696.
Mauro, P. (1997). The effects of corruption on growth, investment, and government expenditure: a cross-country analysis. Corruption and The Global Economy, 83. Retrieved from http://www.iie.com.
Meltzer, A. H., & Richard, S. F. (1981). A rational theory of the size of government. Journal of Political Economy, 89(5), 914-927. doi: 10.1086/261013.
Mo, P. H. (2001). Corruption and economic growth. Journal of Comparative Economics, 29, 66-79. doi: 10.1006/jcec.2000.1703.
Murphy, K. M., Shleifer, A., & Vishny, R. W. (1991). The allocation of talent: implications for growth. Quarterly Journal of Economics, 106(2), 503-30. doi: 10.2307/2937945.
Murphy, K. M., Shleifer, A., & Vishny, R. W. (1993). Why is rent-seeking so costly to growth? The American Economic Review, 83(2), 409-414.
Ndikumana, L. (2006). Corruption and pro-poor growth outcomes: evidence and lessons for African countries. Working Paper Series No. 120, Political Economy Research Institute.
North, D. C., (1991). Institutions. Journal of Economic Perspective, 5(1), 97-112.
Pesaran, M. H., & Shin, Y. (1999), An autoregressive distributed lag modeling approach to cointegration analysis, in Strom, S. (Ed.), paper presented at Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium, Cambridge University Press, Cambridge.
Pesaran, M. H., Shin, Y., & Smith, R. J., (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326. doi: 10.1002/jae.616.
Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrica, 75(2), 335-446. doi: 10.1093/biomet/75.2.335.
Shahbaz, M., (2012). Multivariate based Granger causality between financial deepening and poverty: The case of Pakistan. Paper presented, 13th Annual Research Conference on Population Wellbeing: A Development Imperative was held at Institute of Business Administration (IBA), Karachi (Pakistan).
Suryadarma, D. (2012). How corruption diminishes the effectiveness of public spending on education in Indonesia. Bulletin of Indonesian Economic Studies, 48(1), 85-100. doi: 10.1080/00074918.2012.654485.
Tanzi, V. (1998). Corruption around the world: causes, consequences, scope, and cures. IMF Staff Papers, 45, 559-594.
The Jakarta Post. (2018). Behind the rise of income inequality in Indonesia. Retrieved from http://www.thejakartapost.com/academia/2016/06/08/behind-the-rise-of-income-inequality-in-indonesia.html.
Transparency International. (2018). Corruption Perception Index 2017. Retrieved from https://www.transparency.org/news/feature/corruption_perceptions_index_2017.
Uddin, G. S., Shahbaz, M., Arouri, M. E., & Teulon, F. (2013). Financial development and poverty reduction nexus: a cointegration and causality analysis in Bangladesh. MPRA Paper No. 49264.
Uma, K. E., & Eboh, F. E. (2013). Corruption, economic development, and emerging markets: evidence from Nigeria. Asian Journal of Management Sciences and Education, 2(3).
Wei, S. (2000). How taxing is corruption on international investors? Review of Economics and Statistics, 52(1), 1-11. doi: 10.1162/003465300558533.
World Development Indicators (WDI). (2018). Retrieved from http://data.worldbank.org/data-catalog/worlddevelopment-indicators.
Yusuf, M. (2013). Corruption, inequality of income, and economic growth in Nigeria. MPRA Paper No. 52348. Retrieved from https://mpra.ub.uni-muenchen.de/52348/.
Ajie, H. A., & Wokekoro, O. E. (2012). The impact of corruption on sustainable economic growth and development in Nigeria. International Journal of Economic Development Research and Investment, 3(1).
Aliyu S., & Elijah, A. (2008). Corruption and economic growth in Nigeria: 1986-2007. Munich Personal RePEc Archive (MPRA), MPRA paper No. 12504. 1-20. Retrieved from http://mpra.ub.uni-muenchen.de/ 12504/.
Azfar, O., & Gurgur, T. (2005). Does corruption affect health and education outcomes in the Philippines? SSRN Electronic Journal, 4(7). doi: 10.2139/ssrn.723702.
BPS. (2018). Statistik indikator ekonomi Indonesia. Retrieved from https://www.bps.go.id/subject/23/kemiskinan-dan-ketimpangan.html#subjekViewTab3.
Chetwynd, E., Chetwynd, F., & Spector, B. (2003). Corruption and poverty: a review of recent literature. Management Systems International. Retrieved from https://pdfs.semanticscholar.org/1614/ebee8a2931dec5c956bf083683239c98f9f4.pdf.
Chong, A., & Calderon, C. (2000a). Institutional quality and income distribution. Economic Development and Cultural Change, 48(4), 761-786.
Chong, A., & Calderon, C. (2000b). Institutional quality and poverty measures in a cross-section of countries. Economics of Governance, 1(2), 123-135.
Dartanto, T., & Nurkholis. (2013). The determinants of poverty dynamics in Indonesia: evidence from panel data. Bulletin of Indonesian Economic Studies, 49(1), 61-84. doi: 10.1080/00074918.2013. 772939.
Dickey, D. A., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49(4), 1057-1072.
Dobson, S., & Ramlogan-Dobson, C. (2010). Is there a trade-off between income inequality and corruption? Evidence from Latin America. Economic Letters, 107(2), 102-104. doi: 10.1016/j.econlet. 2009.12.038.
Glaeser, E., Scheinkman, J., & Shleifer, A. (2003). The injustice of inequality. Journal of Monetary Economics, 50(1), 199-222. doi: 10.1016/S0304-3932(02)00204-0.
Gupta, S., Davoodi, H., & Alonso-Terme, R. (2002). Does corruption affect income inequality and poverty? Economics of Governance, 3(1), 23-45. doi: 10.1007/s101010100039.
Gyimah-Brempong, K. (2002). Corruption, economic growth, and income inequality in Africa. Economics of Governance, 3(3), 183-209. doi: 10.1007/s101010200045.
Indonesia-Investments. (2018). World Bank positive about economic growth in Indonesia in 2018. Retrieved from https://www.indonesia-investments.com/id/news/news-columns/world-bank-positive-about-economic-growth-indonesia-in-2018/item8490?.
Jajkowicz, O., & Drobistzova, A. (2015). The effect of corruption on government expenditure allocation in OECD countries. Retrieved from https://acta.mendelu.cz/media/pdf/actaun_201506 3041251.pdf.
Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration - with applications to the demand for money. Oxford Bulletin Economics Statistics, 52(2), 169-210. doi: 10.1111/j.1468-0084.1990. mp52002003.x.
Johnston, M. (1989). Corruption, inequality, and change, in P. M. Ward (Ed.). Corruption, Development, and Inequality (pp.13-37). London: Routledge.
Jong-Sung, Y., & Khagram, S. (2005). A comparative study of inequality and corruption. American Sociological Review, 70(1). doi: 10.1177/000312240 507000107.
Kaufmann, D., & Vicente, P. C. (2005). Legal corruption. Retrieved from http://siteresources.worldbank.org/INTWBIGOVANTCOR/Resources/Legal_Corruption.pdf.
Keefer, P. (2004). A Review of the political economy of governance: from property rights to voice. Paper prepared for a project on The Consequences of Political Institutions in Democracy. World Bank Research Working Paper (3315). Retrieved from http://info.worldbank.org/etools/BSPAN/PresentationView.asp?PID=1967&EID=907.
Keefer, P., & Knack, S. (1997). Why don't poor countries catch up? A cross-national test of an institutional explanation. Economic Inquiry, 35, 590-602. doi: 10.1111/j.1465-7295.1997. tb02035.x.
Levine, R., & Renelt, D. (1992). A sensitivity analysis of cross-country growth regressions. The American Economic Review, 82(4), 942-963.
Li, H., Xu, L. C., & Zou, H. F. (2000). Corruption, income distribution, and growth. Economics and Politics, 12, 155-182.
Li, H., & Zou, H. (2002). Inflation, growth, and income distribution: a cross country study. Annals of Economics and Finance, 3, 85-101.
Mauro, P. (1995). Corruption and growth. Quarterly Journal of Economics, 110(3), 681-712. doi: 10.2307/2946696.
Mauro, P. (1997). The effects of corruption on growth, investment, and government expenditure: a cross-country analysis. Corruption and The Global Economy, 83. Retrieved from http://www.iie.com.
Meltzer, A. H., & Richard, S. F. (1981). A rational theory of the size of government. Journal of Political Economy, 89(5), 914-927. doi: 10.1086/261013.
Mo, P. H. (2001). Corruption and economic growth. Journal of Comparative Economics, 29, 66-79. doi: 10.1006/jcec.2000.1703.
Murphy, K. M., Shleifer, A., & Vishny, R. W. (1991). The allocation of talent: implications for growth. Quarterly Journal of Economics, 106(2), 503-30. doi: 10.2307/2937945.
Murphy, K. M., Shleifer, A., & Vishny, R. W. (1993). Why is rent-seeking so costly to growth? The American Economic Review, 83(2), 409-414.
Ndikumana, L. (2006). Corruption and pro-poor growth outcomes: evidence and lessons for African countries. Working Paper Series No. 120, Political Economy Research Institute.
North, D. C., (1991). Institutions. Journal of Economic Perspective, 5(1), 97-112.
Pesaran, M. H., & Shin, Y. (1999), An autoregressive distributed lag modeling approach to cointegration analysis, in Strom, S. (Ed.), paper presented at Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium, Cambridge University Press, Cambridge.
Pesaran, M. H., Shin, Y., & Smith, R. J., (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326. doi: 10.1002/jae.616.
Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrica, 75(2), 335-446. doi: 10.1093/biomet/75.2.335.
Shahbaz, M., (2012). Multivariate based Granger causality between financial deepening and poverty: The case of Pakistan. Paper presented, 13th Annual Research Conference on Population Wellbeing: A Development Imperative was held at Institute of Business Administration (IBA), Karachi (Pakistan).
Suryadarma, D. (2012). How corruption diminishes the effectiveness of public spending on education in Indonesia. Bulletin of Indonesian Economic Studies, 48(1), 85-100. doi: 10.1080/00074918.2012.654485.
Tanzi, V. (1998). Corruption around the world: causes, consequences, scope, and cures. IMF Staff Papers, 45, 559-594.
The Jakarta Post. (2018). Behind the rise of income inequality in Indonesia. Retrieved from http://www.thejakartapost.com/academia/2016/06/08/behind-the-rise-of-income-inequality-in-indonesia.html.
Transparency International. (2018). Corruption Perception Index 2017. Retrieved from https://www.transparency.org/news/feature/corruption_perceptions_index_2017.
Uddin, G. S., Shahbaz, M., Arouri, M. E., & Teulon, F. (2013). Financial development and poverty reduction nexus: a cointegration and causality analysis in Bangladesh. MPRA Paper No. 49264.
Uma, K. E., & Eboh, F. E. (2013). Corruption, economic development, and emerging markets: evidence from Nigeria. Asian Journal of Management Sciences and Education, 2(3).
Wei, S. (2000). How taxing is corruption on international investors? Review of Economics and Statistics, 52(1), 1-11. doi: 10.1162/003465300558533.
World Development Indicators (WDI). (2018). Retrieved from http://data.worldbank.org/data-catalog/worlddevelopment-indicators.
Yusuf, M. (2013). Corruption, inequality of income, and economic growth in Nigeria. MPRA Paper No. 52348. Retrieved from https://mpra.ub.uni-muenchen.de/52348/.
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Submitted
2018-08-29
Accepted
2018-11-30
Published
2018-12-19
How to Cite
Iskandar, A. (2018). DOES LESS CORRUPTION REDUCE INCOME INEQUALITY IN INDONESIA?. Jurnal Tata Kelola Dan Akuntabilitas Keuangan Negara, 4(2), 167–186. https://doi.org/10.28986/jtaken.v4i2.193
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