The World Bank, absolute poverty and tax evasion

Is the World Bank content to allow a handful of committed individuals and a few NGOs to provide the only meaningful research into the impact of tax evasion on developing countries? It appears so.

Ten days ago SOMO, the Centre for Research on Multinational Corporations based in Amsterdam, published Taxation and Financing for Development examining:

some of the main problems that undermine direct tax revenues in developing countries, with a focus on tax evasion and aggressive tax avoidance by multinational corporations

A key estimate in that report is the "loss of corporate taxes to the developing world" resulting from transfer mispricing and false invoicing. SOMO did not produce any estimate of its own – it said:

Christian Aid calculated that as a result of transfer mispricing and false invoicing alone, the loss of corporate taxes to the developing world is currently running at US$ 160 billion a year.

This is the estimate that I mentioned here (was that really five months ago?) Christian Aid based its findings on Raymond Baker's estimate that seven per cent of trade volumes involves these two forms of activity. The charity cited Baker's book Capitalism's Achilles Heel; Dirty Money and How to Renew the Free-Market System. It is clear, having read Baker's book, that very little research has been done in this area and there are no official estimates. Christian Aid's prediction – that "illegal, trade-related tax evasion alone will be responsible for some 5.6 million deaths of young children in the developing world between 2000 and 2015" – seems to have been based largely on one man's research, a signficant element of which comprised

550 anonymous interviews with heads of trading companies in 11 countries – all on condition of anonymity

More worrying, even the World Bank seems content to leave to a handful of campaigners the task of estimating the cost of illicit financial flows out of developing countries. As the tax campaigner Richard Murphy has recently pointed out, the work of John Christensen, Raymond Baker, Alex Cobham at Christian Aid and Murphy himself seems to be the only work that World Bank has to go on. The World Bank has suggested that better methodologies could be used but "showed no interest" in doing the work itself, Murphy said.

In the meantime, Christian Aid continues to claim that

trade-related tax evasion alone will be responsible for [the deaths of] almost 1,000 [young children in the developing world] a day. Half are already dead.

It's a simplistic, emotive – and no doubt, for some readers, counter-productive – message, and it is clear that it's based on insufficient research. It's simplistic because, as Cobham himself has said:

It is not ... possible to make a simple connection between taxes paid and the availability of funds with which to finance development.

I don't blame Baker or anyone else for trying to assess the impact of capital flight. If, as suggested, it exceeds aid flows from developed countries by a considerable margin, then we really are living in a mad mad world. I understand that we will see more from Baker in the near future. But more and better research is needed, and fast.