Forensic Finance
Public Finance Misconduct
The Fourth Area of Topic
Public finance misconduct research examines illicit behavior at the intersection of finance and public economics. We start by summarizing research related to public corruption and then review the literature on tax evasion and government program fraud.

Types of Public Finance Misconduct
A.
Political Connections and Public Corruption
Political connections significantly impact financial outcomes, with firms often benefiting from ties to politicians through illicit activities like bribes, particularly in developing markets where corruption is rampant. For instance, in Russia, a large portion of market capitalization is linked to politically connected firms that receive preferential treatment such as bailouts. In China, politically connected firms enjoy advantages like larger loans and more government contracts, leading to market inefficiencies. Anti-corruption efforts, as seen in Brazil, can mitigate these issues by promoting competitive markets and reducing corruption, underscoring the need for detailed data to reveal the impacts of political connections on public finance.
B.
Tax Evasion
Tax evasion involves the illegal avoidance of taxes by individuals and corporations, often through offshore tax havens, with an estimated 8% of global wealth hidden in these havens. This practice distorts national wealth and debt statistics, primarily benefiting wealthy households and multinational firms that shift profits to minimize tax liabilities. Leaked data like the Panama Papers have exposed the extent of tax evasion, revealing that the wealthiest evade a significant portion of their taxes. Governments have responded with tax information exchange agreements, but evaders continually adapt, highlighting the need for robust enforcement and comprehensive financial data to effectively combat tax evasion​.
C.
Government Program Fraud
Government program fraud involves the misappropriation of public funds through illicit activities, significantly impacting programs like the Earned Income Tax Credit and the Paycheck Protection Program (PPP). Research has identified substantial fraud within these programs, with income manipulation and suspicious loans leading to significant financial losses. For example, the PPP during the COVID-19 pandemic saw an estimated $64.2 billion in suspicious loans, with total fraud possibly reaching $117 billion. This underscores the importance of transparency and detailed data in mitigating fraud in government programs, which is crucial for maintaining the integrity and effectiveness of public assistance.