Ever since the rapid transformation of a decentralized system in Indonesia, income distribution in the country has become much more unequal as shown by an increase in consumption-based Gini coefficient from 0.31 in 2001 to 0.4 in 2016. Existing literature on efforts to reduce inequality in Indonesia relies mostly on economic factors. It still lacks investigation on noneconomic aspects particularly with respect to governance, including effective bureaucracy and anticorruption mainstreaming policies. A high-quality institution taking the power could accelerate basic service provision, economic growth, and poverty reduction. If it is properly applied, decentralization could become an avenue for regional governments to practice good governance that promotes accountability and abolishes heavy bureaucracy and corruption. Good governance and less rent-seeking practices may expedite efforts to reduce inequality. Using multiple datasets combining corruption perceptions index (CPI), Indonesian governance index (IGI), and budget realization data at the provincial level, this paper aims at examining the impact of good governance on inequality in Indonesia. The evidence would provide valuable and insightful information for policymakers that tackling inequality needs a comprehensive approach, taking into account economic and noneconomic issues.
