Corruption and Public Finance from Linda Ween's blog

Corruption is a global issue that affects countries and reduces the economic prosperity and the social well-being of the people. More to say, corruption eats into the public funds and lowers them, which negatively influences public investments. Globally, the amount of money spent on bribes is quite significant. If used legally, this money could boost the development of the respective countries. Even though corrupt deals empower the involved culprits economically, corruption only worsens the economic inequality as it promotes the impoverishment of the have-nots. The researcher seeks to conduct a library study to unearth the various ways, in which corruption affects the public funds as well as provide some of the recommendations. Therefore, the work covers the issues explaining how corruption contributes to the inefficiency of the productivity of public investments/funds, reduces donor funds, and increases inequalities as well as decreases government revenue. The work also covers some recommendations such as sanctions and strict laws.

Corruption and Public Finance

Corruption is a dishonest or unethical act committed for personal gain by an individual who has a mandate of holding a position of authority. The vice may exist in the form of bribery or embezzlement of public funds. It also consists of other acts done in an employee’s official capacity but for personal gains. Corruption may also have a political dimension, which presupposes the use of public power for personal benefit. The problem of corruption is a global issue that affects many countries and even cripples the national economies in some cases. Between 2001 and 2002, the World Bank estimated the total amount of money spent on bribes at $1 trillion at the global level. In most cases, corruption also means the obscure provision of goods or services to a third party so that the recipient could influence the actions to the benefit of the giver or both sides. Thus, this research examines the relationship between corruption and the public finance as well as the measures that can alleviate the situation.

Relationship between Corruption and Public Funds

Productivity of Public Investment Funds

Corruption lowers the productivity of public investment through the loopholes that divert the money outside the intended business. When the government employees are motivated by personal interests, they tend to siphon substantial amounts of government money meant for projects into their own pockets. The problem leaves less money for running various projects while increasing the costs of these investments. The higher costs become a burden to the government and the citizens, and thus, more tax payer's money ends up in inefficient projects. In addition, corruption increases the prices of government goods whose purchase relies on the public funds. Therefore, the problem strains the public funds by adding an extra burden of unwarranted costs as well as diverting the money to the unintended purposes.

Reducing the Public Revenue

The government relies on taxation as a major way of financing its operations. However, corruption poses a threat to taxation as it lowers the amount the government collects from an individual as well as firm's trade activities and income. People and businesses may collude with the tax administration officers, whereby they pay bribes to the officers who, in turn, collect less money from them than required by the law. Traders may also conspire with customs officers to allow the latter to ferry goods across the borders while paying little or no tax. People may also pay bribes to avoid the legal fees of government goods and services or fines that provide revenue to their governments. Thus, United Nations Office on Drugs and Crime stated that in Croatia, tax officers received substantial amounts of bribes in 2010, and this was a big loss for the country's national economy. The reduction of the tax figures collected by the governments signifies a decrease in the public revenue. More to say, rampant corruption increases the cost of doing business, which discourages the local as well as foreign investors from investing into the country as they fear to operate at a loss or they already lose too much money in the form of bribes. Reduced local and foreign investments imply a reduction in the tax base of a country, thus lowering the revenue collected through taxes/public funds. The consequence of the problem is the increased inability of the government to foot the public expenditure. Therefore, there is the need to fight corruption at all costs.

Improper Distribution of Resources/Public Funds

Corruption closely relates to politics, and it greatly interferes with the equality in the distribution of public funds. Political leaders are mostly the governors or presidents of many countries. These people have the power to control the resources in their respective countries, and thus, they may decide or significantly influence the direction of public funds. As a way of rewarding their political supporters, the leaders may direct funds or government projects towards the regions inhabited by the preferred groups of people instead of using the necessity as the criteria for money distribution. Autocratic and dictatorial governments are most notorious for corruption as the rulers enjoy impunity because no one can bar them from using the public funds in whatever manner they feel. Consequently, the money lands in the hands of a few people, especially the rich ones, while the have-nots remain empty-handed. The leaders also dominate the ownership of the minerals and other resources found in their countries, hence locking the ordinary citizens out of access to the revenue. The problem promotes inequality in the distribution of resources in such countries, which only fuels regional imbalances.

Donor Funds, Grants, and Loans

Apart from government investments and taxation, countries also gain revenue from donors in the form of grants, loans, and donations. However, donors give conditions before offering their money, and they demand accountability to be sure that their money lands in the right place. In a corrupt state, donors are reluctant to offer assistance due to the fear of misappropriation of their money. Thus, this reluctance deprives the affected countries of the money they could receive from donors, which leads to the shrinking of the public funds.

Recommendations

The governments of the countries affected by corruption as well as regional integrations should come up with very strict rules to reduce if not eliminate the problem of corruption. The rules should touch on such issues as accountability, work ethics, employee discretion, and regional equality as well as conformity to the laid down procedures for the purpose of preventing or minimizing the conflict of interest. The violators of these laws should be prosecuted, and if found guilty, they should face incarceration, hefty fines, a freeze of assets, dismissal from employment or the revocation of visa, and the consequent deportation in the cases involving foreigners. If such rules are imposed, corruption will substantially reduce.

The international community can also issue sanctions against corrupt leaders and their countries as a way of compelling them to embrace accountability. The sanctions should include the removal of countries from international organizations, the issuance of travel bans, and revocation of trade agreements as well as the complete withdrawal of donor funds. Such sanctions would discipline the leaders of the affected countries, thus forcing them to end corruption practices.

Therefore, corruption is a global challenge that significantly affects the public funds in a variety of ways. This vice may involve individuals or the government at large. The problem increases the costs of running and maintaining government projects, thus straining the public funds and making the investments inefficient. The issue also promotes the evasion of taxes and fines as well as reduces investment, which reduces a country’s the tax base. The problem also leads to the improper distribution of public funds as the corrupt leaders may direct government projects into their home turfs. The problem also dissuades the donors from offering assistance under the fear of the misappropriation of their funds. Some of the possible solutions to this problem are the adoption of strict laws as well as the issuance of various sanctions. Therefore, the governments as well as international organizations should join their efforts in the fight against corruption to make the world a better place.

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