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.
• Pages: 26-29

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

Corruption

The Cost Of

26 FINANCE & DEVELOPMENT | September 2019