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Fiscal Monitor
Fiscal Monitor: Curbing Corruption
April 2019
Fiscal Monitor
April 2019
Global Financial Markets Confront the War in the Middle East and Amplification Risks
The April 2019 edition of Fiscal Monitor is focused on two broad themes: fiscal policy in a fast-changing global economy and curbing corruption.
This report discusses fiscal policies to prepare for the next downturn and foster long-term inclusive growth by adapting to changing demographics, advancing technology, and deepening global integration. It also covers recent fiscal developments and the fiscal outlook in advanced economies, emerging markets, and low-income developing countries; recent trends in government debt and analysis of changes in fiscal balances, revenue, and spending; and potential fiscal risks.
The report takes on in-depth look at how corruption impacts government policies and operations, the fiscal costs, and how fiscal institutions can help fight corruption.
With global growth slowing and uncertainty rising, fiscal policy should prepare for potential downturns—balancing stabilization and sustainability objectives—and put more emphasis on reforms to foster long-term inclusive growth in a fast-changing global economy. Shifting demographics, rapid technological progress, and deepening international economic integration bring challenges. To remain effective, fiscal policy needs to adapt to these key trends reshaping the global economy. Where there is limited budgetary room, such adaptation will have to occur through inclusive and growth-friendly budget recomposition. International cooperation to improve the taxation of multinational companies, and to tackle climate change and corruption could amplify and spread the reform gains.
Corruption—the abuse of public office for private gain—distorts the activities of the state and ultimately takes a toll on economic growth and the quality of people’s lives. It weakens key functions of the public sector, including the ability to collect taxes or to make expenditure choices in a fair and efficient way. If, in exchange for bribes, civil servants facilitate tax evasion or corrupt politicians provide ad hoc tax breaks for some people or firms, others will end up facing higher tax rates, and the government may be unable to generate enough revenue to pay for productive spending. Likewise, the quality of public services and infrastructure suffers when project selection reflects opportunities for kickbacks or nepotism. Bribery of foreign officials by multinationals and the use of opaque financial centers, or secrecy jurisdictions, to hide corrupt gains or to evade taxes add a global dimension to the challenge. Against this backdrop, and by contributing to growing inequality, corruption undermines trust in government and can lead to social and political instability.
The widespread acknowledgment that tackling corruption is critical for macroeconomic performance and economic development has led to its inclusion in the United Nations Sustainable Development Goals; it has also prompted several initiatives, including the Framework for Enhanced IMF Engagement in Governance (IMF 2018). This chapter assesses the fiscal costs of corruption and explores the practices and institutions in the fiscal area that can help curb opportunities and incentives for corruption.
