{"id":6234,"date":"2023-10-18T18:03:14","date_gmt":"2023-10-18T18:03:14","guid":{"rendered":"https:\/\/globaldev.blog\/?p=6234"},"modified":"2023-10-18T18:03:15","modified_gmt":"2023-10-18T18:03:15","slug":"overcoming-the-challenge-of-illicit-financial-flows-four-pieces-of-advice-for-policymakers","status":"publish","type":"post","link":"https:\/\/globaldev.blog\/overcoming-the-challenge-of-illicit-financial-flows-four-pieces-of-advice-for-policymakers\/","title":{"rendered":"Overcoming the challenge of illicit financial flows: four pieces of advice for policymakers"},"content":{"rendered":"\n
From profit shifting to sanction evasion, illicit financial flows divert funds away from essential poverty-fighting and infrastructure programs. A growing body of research provides essential insights for policymakers on how to tackle this key development challenge.<\/strong><\/em><\/p>\n\n\n\n Illicit financial flows (IFFs) are a major development challenge for countries in the Global South. Developing countries lose money and their economies weaken due to these illegal transactions of money across international borders.<\/p>\n\n\n\n IFFs lead to unfair competition for domestic firms, cause governments to misallocate economic resources and facilitate tax evasion, which increases inequality and may decrease citizens\u2019 general willingness to pay taxes. IFFs also allow criminals and human rights violators to escape sanctions.<\/p>\n\n\n\n Thanks to improved data sources, research on IFFs and the Global South has grown significantly<\/a>. These studies\u2019 findings can help policymakers tackle this critical problem. In this post, I break down the topic of IFFs into four sub-categories and provide policy recommendations on each.<\/p>\n\n\n\n Preventing companies from profit shifting through tax havens<\/strong><\/p>\n\n\n\n Profit shifting is a complex issue that has garnered significant attention in recent years. It involves multinational corporations shifting their profits to low- or no-tax jurisdictions to reduce their tax burden. Governments worldwide lose revenue.<\/p>\n\n\n\n The world has been trying to curb profit shifting<\/a> for a decade. But a recent United Nations University World Institute for Development Economics (UNU-WIDER) study<\/a> shows that the share of multinational profits shifted to tax havens grew from less than 2% in the 1970s to 37% in 2019. Globally, 10% of corporate tax revenues are lost as a result, reflecting a leaky bucket of funds for lower-income countries.<\/p>\n\n\n\n