The True Cost of Global Corruption
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Bibliographic details
- Authors: PAOLO MAURO, PAULO MEDAS, JEAN MARC FOURNIER
- Published: September 1, 2019
Overview
- Corruption—defined as the abuse of public office for private gain—distorts state activities, reduces economic growth, and lowers quality of life.
- Corruption reduces tax revenue, leads to overpayment for goods and services and investment projects, and distorts spending priorities away from education, health care, and effective infrastructure.
- Examples include Operation Car Wash (Petrobras, Brazil) and past bribery scandals in Japan that helped motivate anti-bribery legislation.
Fiscal impact and key statistics
- The least corrupt governments collect 4 percent of GDP more in taxes than those at the same level of economic development with the highest levels of corruption.
- If all countries reduced corruption similarly to recent progress in some places, they could gain $1 trillion in lost tax revenues, or 1.25 percent of global GDP.
- Public procurement accounts for 13 percent of GDP, on average, among members of the Organisation for Economic Co-operation and Development, which represents 36 advanced economies.
- Among low-income countries, the share of the budget dedicated to education and health is one-third lower in more corrupt countries.
- Case study (Georgia): tax revenue jumped from 12 percent to 25 percent of GDP in five years after an aggressive anti-corruption campaign—even as tax rates were lowered.
- Civic attitudes in Georgia changed: the share of people who felt it was never justifiable to cheat jumped from about 50 percent to almost 80 percent.
- More than 40 countries have criminalized payments by their companies to bribe officials abroad.
Hot spots of corruption
- Natural resources (especially oil and mining): outsized extraction profits incentivize bribes and state capture; resource-rich countries tend to be more corrupt due to weaker institutions and poor accountability.
- State-owned enterprises (SOEs): management may be susceptible to undue influence, making SOEs in energy, utilities, and transportation less profitable and efficient in more corrupt countries; examples cited include Petrobras (Brazil), Elf Aquitaine (France, before privatization), Eskom and Transnet (South Africa).
- Public procurement and public investment: large sums involved and unique project features make it harder to compare costs and easier to conceal bribes and inflate costs; grand corruption often associated with complex projects such as construction and defense equipment.
- Revenue administration and discretionary tax systems: complex and opaque tax codes increase opportunities for officials to solicit bribes and for legislators to introduce exemptions or loopholes in exchange for payments.
Social and developmental consequences
- Distortion of spending priorities drains resources from education, health care, and infrastructure—investments critical to sustainable and inclusive growth.
- Test scores tend to be lower in more corrupt countries despite similar classroom time; teacher hiring and absenteeism can be influenced by bribery or connections.
- In Brazil, where federal transfers for education were partially lost to corruption, dropout rates were higher and test scores worse.
- Improvements in public services (lower crime, fewer power outages) can boost tax compliance and trust in government, reinforcing fiscal gains.
Institutional and technological levers for reform
- Success is more likely when countries improve several mutually supporting institutions simultaneously.
- Priority areas to start with: procurement, revenue administration, management of natural resources, and effective internal controls.
- A fiscal governance framework requires a professional and ethical civil service; heads of agencies, ministries, and public enterprises must set a clear tone at the top.
- Investing in information and communication technologies and transparency reduces opportunities for bribery; examples: electronic procurement systems in Chile and Korea.
- Transparency must be paired with dissemination and explanation of data; a free press enhances the benefits of fiscal transparency (example: Brazil audit releases affecting reelection prospects, with stronger effects where local radio stations exist).
- Citizens’ monitoring platforms (examples: Colombia, Costa Rica, Paraguay) allow oversight of physical and financial progress of investment projects.
Policy recommendations and lessons for policymakers
- Tackle high-risk areas first: procurement, revenue administration, and management of natural resources.
- Strengthen internal controls and build a professional, ethical civil service.
- Upgrade institutions continuously over many years; political will and perseverance are essential.
- Keep pace with evolving technology to close new opportunities for wrongdoing (e.g., electronic procurement, information and communication technologies).
- Promote transparency and support a free press so released data translate into accountability and civic action.
- International cooperation is crucial: criminalize foreign bribery, crack down on money laundering, and reduce opportunities to hide corrupt proceeds in opaque financial centers.
Conclusion
- Curbing corruption is a difficult, long-term endeavor that starts with domestic political will and sustained institutional strengthening.
- The economic and social gains from reducing corruption can be substantial: higher tax revenues, improved public services, greater trust in government, and better development outcomes.
The True Cost of Global Corruption – F&D Magazine, PAOLO MAURO, PAULO MEDAS, JEAN MARC FOURNIER, September 2019
Content in this bundle
- تكلفة الفساد
- El costo de la corrupción ● Finanzas y Desarrollo ● Septiembre de 2019
- The True Cost of Global Corruption Mauro
- Тяжелое бремя коррупции – Финансы и развитие – сентябрь 2019 года
- The True Cost of Global Corruption – IMF F&D
- 腐败的代价 - 《金融与发展》2019年9月号·第56卷·第3期 - 国际货币基金组织季刊