Tackling Corruption in GovernmentNo country is immune to corruption. The abuse of public office for private gain erodes people’s trust in government and institutions, makes public policies less effective and fair, and siphons taxpayers’ money away from schools, roads, and hospitals.
While the wasted money is important, the cost is about much more. Corruption corrodes the government’s ability to help grow the economy in a way that benefits all citizens.
But the political will to build strong and transparent institutions can turn the tide against corruption. In our new Fiscal Monitor, we shine a light on fiscal institutions and policies. Such as tax administration or procurement practices, and show how they can fight corruption ( Anti Corruption act ).
Corruption helps evade taxesWe analyze more than 180 countries and find that more corrupt countries collect fewer taxes, as people pay bribes to avoid them, including through tax loopholes designed in exchange for kickbacks. Also, when taxpayers believe their governments are corrupt, they are more likely to evade paying taxes.
We show that overall, the least corrupt governments collect 4% of GDP more in tax revenues than countries at the same level of economic development with the highest levels of corruption.
A few countries’ reforms generated even higher revenues. Georgia, for example, reduced corruption significantly and tax revenues more than doubled, rising by 13 % points of GDP between 2003 and 2008. Rwanda’s reforms to fight corruption since the mid-1990s bore fruit and tax revenues increased by 6 % points of GDP
Corruption also prevents people from benefiting fully from the wealth created by their country’s natural resources. Because of the exploration of oil or mining generates huge profits, it creates strong incentives for corruption. Our research shows that resource-rich countries, on average, have weaker institutions and higher corruption.
Corruption wastes taxpayers’ money
The Fiscal Monitor shows that countries with lower levels of perceived corruption have significantly less waste in public investment projects. We estimate that the most corrupt emerging market economies waste twice as much money as the least corrupt ones.
Governments waste taxpayers’ money when they spend it on cost overruns due to kickbacks or bid rigging in public procurement. So, when a country is less corrupt, it invests money more efficiently and fairly.
Corruption also distorts government priorities. For example, among low-income countries, the share of the budget dedicated to education and health is one-third lower in more corrupt countries. It also impacts the effectiveness of social spending. In more corrupt countries school-age students have lower test scores.
Corruption is also a problem in state-owned enterprises, such as some countries’ oil companies, and public utilities like electric and water companies. Our analysis suggests that these enterprises are less efficient in countries with high levels of corruption.
Where there is political will, there is a way
Anti Corruption requires political will to create strong fiscal institutions that promote integrity and accountability throughout the public sector.
Based on the research, here are some ( Anti Corruption) lessons for countries to help them build effective institutions that curb vulnerabilities to corruption:
Invest in high levels of transparency and independent external scrutiny
Build a professional civil service
Keep pace with new challenges as technology and opportunities for wrongdoing evolve
More cooperation to fight corruption
Anti corruption is a challenge that requires persevering on many fronts, but one that pays huge dividends. It starts with political will, continuously strengthening institutions to promote integrity and accountability, and global cooperation.
Reposted from IMFBlog