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Bribery and Time Wasted in Indonesia: A Test of the Efficient Grease Hypothesis

Author

Listed:
  • Ari Kuncoro

    (Researcher, Institute for Economic and Social Studies, Faculty of Economics, University of Indonesia (LPEM FEUI))

Abstract

This paper examines the time wasted or effective harassment due to red tape at the district level in Indonesia. The study finds a positive relationship between effective harassment in the form of the time spent by firms with local bureaucrats and bribe rates, even after controlling for firm and other characteristics (location, industry etc). The bureaucratic harassment and bribes are therefore not completely exogenous – so, the efficient grease hypothesis cannot be supported. After decentralization, retribution to extract rents has become the biggest nuisance for most firms. Besides the euphoria of decentralization, a weak local tax base also explains why the temptation to create nuisance taxes and retributions is great. One picture is that education seems to have a moderating impact on the part of local officials’ behavior in creating red tape to extract rents.

Suggested Citation

  • Ari Kuncoro, 2004. "Bribery and Time Wasted in Indonesia: A Test of the Efficient Grease Hypothesis," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 52, pages 31-53, April.
    • Handle: RePEc:lpe:efijnl:200403
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    Cited by:

    1. Barli Suryanta & Arianto A. Patunru, 2023. "Determinants of Foreign Direct Investment in Indonesia," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 15(1), pages 109-131, January.

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