Corruptionandpublicfinance.docVIP

Sectoral Perspectives on Corruption November 2002 Corruption and Public Finance Michael Schaeffer The views and interpretations represented in this paper belong solely to its author and should not be attributed to USAID or to MSI. Abstract The phenomenon of corruption should not be viewed in isolation, but as part of the broader issue of governance and public management. The international community’s recognition in the late 1990s of the corrosive effect of corruption is a logical extension of the link between governance and development created earlier in the decade. Corruption has occurred from the earliest of time and in all societies. Virtually every aspect of public administration, and public finance, can be a source of corruption – large procurements and major public works projects, tax administration, debt management, customs and ill-designed privatization of state owned enterprises. Definitions of corruption can be extremely complex. The simplest definition is, “Corruption is the misuse of public or private office for personal gain.” In particular, it is widely believed that weaknesses in information and control systems in developing country bureaucracies, and lack of transparency and accountability within the legal and political systems have given rise to cost padding, service diversions and corruption. Aside from the moral and legal considerations, there is now solid evidence that corruption harms operational effectiveness, distorts resource allocation, and invariably hurts the poor the most. In contrast to just a few years ago, corruption is increasingly seen as neither beneficial (‘grease for the machine’), nor inevitable (‘it’s always worked this way’), nor respectable (‘everybody does it’). The emerging consensus with respect to corruption is being translated into actual policies of international organizations and governments around the world. This desk study will address the above topics through a selective review of some of the issues dea