Corruption, Public Spending, and Education Outcomes: Evidence from Indonesia

Abstract

This paper takes advantage of a new corruption measure across regions within a country to measure the influence of corruption on public spending efficacy in the education sector in Indonesia, one of the most corrupt countries in the world. I find that public spending has a negligible effect on education outcomes in highly corrupt regions, while it has a statistically significant, positive, and relatively large effect in less corrupt regions. I do not find any direct effect of corruption on education outcomes, hence implying that one channel through which corruption adversely affects the education system is through reducing the effectiveness of public spending.

Keywords: corruption, public spending, education, Indonesia

JEL Classification: D73, H75, I21, O1