IMF says global corruption axes tax revenues

A new report published by the International Monetary Fund (IMF) has estimated that Government corruption has robbed the world of US$1 trillion in tax revenues or 1.25 per cent of global GDP.

The report, entitled Fiscal Monitor – Curbing Corruption, revealed that the least corrupt governments collect 4 per cent of GDP more in tax revenues than their peers with the highest levels of corruption based on an analysis of countries at similar income levels.

“Based on such cross-country comparisons, if all countries today were to reduce corruption by a similar extent, on average, as those that reduced it over the past two decades, global tax revenues could be higher by US$1 trillion, or 1¼ per cent of global GDP,” the IMF said.

“The gains would likely be greater considering that lower corruption would increase economic growth, further boosting revenues. Countries that managed to reduce corruption significantly were rewarded with surges in tax revenues as a share of GDP,” the Fund continued.

It referenced Georgia which has seen tax surges of 13 percentage points and Rwanda of 6 percentage points.

According to the Fund, evidence also suggests that corruption distorts how governments use public money. The IMF added that less corrupt countries dedicate a higher share of resources to social spending including education and health while more corrupt countries are forced to overpay for building roads and hospitals, as well as impacts the education level of the country.

“Fighting corruption requires mustering political will. To ensure lasting improvements, however, it also requires developing good institutions to promote integrity and accountability throughout the public sector,” IMF said.