The Cost of Corruption

Author:Paolo Mauro - Paulo Medas - and Jean-Marc Fournier
Position:PAOLO MAURO is deputy director,PAULO MEDAS is a deputy division chief,and JEAN-MARC FOURNIER is an economist,all in the IMF's Fiscal Affairs Department. This article draws on 'Curbing Corruption,' Chapter 2 of the IMF's April 2019 Fiscal Monitor.

Graft results in lost tax revenue,but it also takes a social toll

In 2013, Brazilian investigators working on
a routine money-laund ering ca se stumbled
onto something far bigger: a bribery and
bid-rigging scheme involving sta te-controlled
oil giant Petrobras. Operation Car Wash, as the
probe came to be known, discovered that some
of Brazil’s largest const ruction and engineering
rms had paid billions of dolla rs in bribes over
a period of years to secure lucrative contract s
from Petrobras. e scandal implicated dozens
of government ocials and politicians.
Such shady dealings aren’t limited to emerg-
ing market economies like Bra zil, of course. In
one spectacular ca se in the 1970s, politicians in
Japan accepted bribes to approve contracts to buy
US military a ircraft. is scandal was one of the
motivations for the passage of a law forbidding US
companies to pay bribes abroad. But wherever it
appears, corruption, or the abuse of public oce
for private gain, distorts the activities of the state
and ultimately tak es a toll on economic growth and
the quality of people’s lives.
Depending on its extent, corruption can h ave a
profoundly detrimental eect on public na nces as
governments collect less in ta x revenue and overpay
for goods and service s or investment projects. But
the cost of corruption is greater tha n the sum
of lost money: distortions in spending priorities
Graft results in lost tax revenue, but it also takes a social toll
Paolo Mauro, Paulo Medas, and Jean-Marc Fournier
The Cost Of
26 FINANCE & DEVELOPMENT | September 2019

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