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Governments could save $1 trillion in taxes by curbing corruption, new IMF research says

Key Points
  • Among advanced economies, countries with the lowest levels of corruption collected nearly 5 percent of GDP more in tax revenues on average than countries with the highest levels of corruption, the IMF found.
  • A 2018 survey by the OECD found 42 percent of state-owned enterprises reported corrupt acts or other irregular practices in their company during the past three years.

Cracking down on corruption would reap big economic rewards for governments around the world, according to new analysis by the International Monetary Fund (IMF).

In a chapter published Thursday as part of the IMF's April 2019 Fiscal Monitor report, researchers found reducing corruption across all countries would increase total tax revenues by $1 trillion, or roughly 1.25 percent of global GDP (gross domestic product).

"The gains would be greater considering that lower corruption would raise economic growth, further boosting revenues," the report added.

Among advanced economies, countries with the lowest levels of corruption collected nearly 5 percent of GDP more in tax revenues on average than countries with the highest levels of corruption, the IMF found. For a country the size of the U.K., for example, that math could translate into hundreds of millions of dollars in additional government incomes per year.

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What's the cost of corruption?

The IMF defines corruption as "the abuse of public office for private gain" which can transpire in various ways like payments of bribes, embezzlement, nepotism and conflicts of interest. In the report, the Washington-based fund did not rank the most corrupt countries but described corruption as a "global problem demanding greater international cooperation to tackle it."

Measuring the economic costs of corruption is tough since it can occur at various levels of government, from tax collection to the negotiation of contracts between private companies and the public sector. The IMF, along with other international organizations like the World Bank and the Organization for Economic Cooperation and Development (OECD), have prioritized studying global corruption and giving policy recommendations for curbing behavior like bribery and money laundering.

A 2018 survey by the OECD found 42 percent of state-owned enterprises reported corrupt acts or other irregular practices in their company during the past three years. High-profile probes of organizations like Petrobras in Brazil or 1MDB in Malaysia have highlighted the widespread nature of corruption in recent years.

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What happened to Malaysia's 1MDB money?

The new IMF report found corruption also has implications for countries' public finances outside of tax revenues. The researchers said governments that are more corrupt spend less money on education and health care, especially in low-income and emerging market economies.

The IMF urged governments to take a "comprehensive" approach to tackling corruption, which requires strong "political will." Key steps include clear laws around tax collection, independent oversight and audits, and strict punishments for corrupt acts. A free press and government initiatives to digitize public data also help reduce corruption, the report found.

"Plugging a few holes would simply lead wrongdoers to exploit other vulnerabilities," the IMF said.