US Case Study: How the US Can Curb Corruption Through the Budget Process

This paper is a case study on the costs and locations of corruption in the United States. It applies a global model that estimates the costs of corruption and other efficiency losses, which takes a risk and systems based approach. The costing model was presented at the 2024 ECPR general conference. The paper also undertakes trend analysis of fiduciary risks and fiscal performance together with a review of what the model and underlying data reveal about the size of corruption within the US public finance system and the effects on citizen trust in government and the institutions that administer core public finance and public accountability sub-systems. A core element of the paper is a focus on US fiscal space and how corruption can be tackled more systematically, effectively and safely through the US public finance system. The four point-in-time fiscal space dimensions (tax, efficiency, grants/3rd part payments and debt/assets) are explored in detail. The costing model is used to provide data for the efficiency dimension of fiscal space, while NATO and OECD-DAC donor aid data is used to estimate the 3rd party payment dimension of fiscal space. The paper reveals that almost $2 trillion dollars is lost to corruption and other inefficiencies at the US general government level, which is equivalent to around 20% of government expenditure, 6% of GDP and $5,000 per capita. While this appears large in nominal terms it is also revealed to be low relative to other counties on a percent of GDP basis. The biggest source of US losses is the budget and congress where resources are initially allocated and public accountability is founded. However, systemic risks throughout the US public finance system contribute significantly also, including audit, tax, payroll, accounting, procurement and balance sheet management systems. US fiscal space analyses reveals that efficiency ($2 trillion) is now by far the biggest available source of fiscal space as debt and tax takes are at levels that are already too high based on certain economic theories such as the IMF debt sustainability analysis framework, and supply side economics theory including growth maximising versions of the Laffer curve on efficient taxation. The analysis also shows that fulfilling aid and NATO-related targets are relatively very small and contain inherent corruption risks confounding policy analysis, where increases in defence and/or aid funding may increase corruption and other inefficiencies at lower or greater rates compared to the additional value created. The paper also highlights core structural (legislative, institutional and economic) reforms to strengthen the culture/effectiveness of institutions to improve efficiency, reduce corruption and ultimately to build back trust in government.