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The Precarious Stateof Public Finance
Tax evasion, capital flight and the misuse of public moneyin developing countries – and what can be done about it.
Jens Martens
 
Jens Martens – The Precarious State of Public Finance
Contents
Tables and Graphs 2Abbreviations 2Preface 4Introduction 5
 
Where do public revenues7in developing countries come from
–
 and why are they not higher?
1.1 Ineffective tax systems to the detriment of the poor 101.2 The growth in the shadow economy 131.3 Weak and corrupt tax authorities 151.4 Investment pressure and
‘
tax races to the bottom
’
151.5 Transfer pricing and other tricks in shifting pro
fi
ts 16to low-tax jurisdictions1.6 Capital
fl
ight to tax havens 191.7 The pressure towards trade liberalisation 21and tariff reduction1.8 Summary: Tax evasion and tax avoidance cost billions 23
What are public revenues used for
–
 24and why not only for development andthe fight against poverty?
2.1 Despite the MDGs
–
stagnation in health 25and education expenditures2.2 Debt burden remains high 272.3 Harmful subsidies
–
also a problem in the Global South 282.4 Military expenditures at the expense of the poor 302.5 Summary: Reallocating budgets would generate 30billions for the MDGs
What can be done? Steps toward32global tax justice and eco-social fiscal reformsWhat is being done? International40civil society campaigns and initiatives
4.1 Tax Justice Network 404.2 Publish What You Pay 444.3 International Budget Project 45Bibliography 46
Part 1Part 2Part 3Part 4
1
 
Jens Martens
–
The Precarious State of Public Finance
Table 1Table 2Table 3Table 4Table 5Table 6Table 7Table 8Table 9Table 10Table 11Table 12Graph 1Graph 2Graph 3
Tables and Graphs
Countries with the greatest dependence 8on of
fi
cial development assistance (ODA)Central government revenues as a percentage 9of GDP in selected countriesSources of government revenues 11in developing countriesThe magnitude of the informal economy 16in selected countriesCountries with transfer pricing rules 18The worst cases of embezzled funds 19Global tax havens and offshore centres 20Countries with a high dependence 22on customs revenuesMeasured levels of expenditure on health 25Interest payments as a percentage 28of government expenditureEnvironmentally harmful subsidies worldwide 29Military expenditures as a percentage 31of central government expenditureThe case of Uganda: revenues 2004 / 2005 10Income inequality in selected countries (Gini Index) 12Public expenditure on education (% of GDP) 26ACPGDPBMZGNIGNPBWIDACECOSOCEPAsEPZsEUG77African, Caribbean, and Paci
fi
c countriesGross Domestic ProductGerman Ministry for Economic Cooperationand DevelopmentGross National IncomeGross National ProductBreton-Woods-Institutions (IMF andthe World Bank Group)Development Assistance CommitteeEconomic and Social CouncilEconomic Partnership AgreementsExport Processing ZonesEuropean UnionGroup of 77
Abbreviations
2
of 00

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