Digitalization and Financial Services Constrain Informality and Eradicate Petty Corruption Among Street-Level Bureaucrats: An Ethnographic Study of Electronic Levy Collection

Studies on informality—often defined as the art of bypassing the state—tend to emphasize non-state actors and their survival strategies. Informal and illegitimate activities carried out by the state apparatus are often overlooked. This study shifts the analytical focus to the circuit of social actors and the moral system that enables or constrains informality. Drawing on a case of levy collections in a traditional market in Magelang City, Indonesia, this paper documents the changes of informal behavior from levy collectors (street-level bureaucrats) and small-scale merchants (citizens) following the introduction of a new levy collection system integrating a digitalization and financial service system named e-retribusi. Prior to e-retribusi, the local government implemented a manual ticketing system, where small-scale merchants were required to pay the levy in cash to levy collectors, creating an opportunity for petty corruption. After the introduction of e-retribusi, the city bureaucracy and the local bank developed an incentive-based model that redefines the levy collectors. Now serving as intermediaries, these street-level bureaucrats receive legitimate financial incentives from the local bank, replacing illicit income from the manual ticketing system. This ethnographic study has revealed that the role of digital governance and financial services can transform illegal practices from the street-level bureaucrats. The finding contributes to the debates on informal governance by exploring how digital technologies and financial systems reshape the behavior of social actors, constrain informality, and help eradicate corruption in the public sector.