corruption in Indonesia

The word ‘corruption’ has many meanings, but economists use it to mean ‘the misuse of public office for private gain’. Corruption works against economic efficiency mainly because it is secretive. From the point of view of private companies, corruption is like taxation, since both take money from private business. But corruption is illegal. The need to avoid detection and punishment makes corruption less efficient than taxation. A bribe is a contract that cannot be enforced in court. This creates the opportunity for the bribe-taker to renege – or to demand a higher bribe from the buyer.

Under the Suharto regime, corruption was apparently compatible with high growth. Unlike in most corrupt countries, corruption in Indonesia seemed to inflict little cost on economic development. Do different kinds of corruption perhaps impact differently on efficiency? One explanation, put forward by