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I. Background Recent volatility in international fuel prices has highlighted the fiscal risk inherent in the current approach to fuel pricing in many developing and emerging countries. 1 In these countries, domestic fuel prices are administratively determined and increases in international fuel prices are often not fully passed-through to domestic consumers. This has translated into increased volatility in fuel tax levels and revenues, and substantial fiscal costs over long periods, especially when there is more complete pass-through of international price decreases. For example, median pass-through of changes in international diesel and gasoline prices fluctuated widely between end-2003 and end-2011 with corresponding volatility in average fuel taxes and thus fuel tax revenues (Table 1). The resulting revenue volatility, and in particular large fiscal costs during periods of sustained increases in international prices (Coady and others, 2010; Coady, Flamini, and Antonio, 2012), present difficult challenges for short-term 1 Fuel products include gasoline, diesel, kerosene, fuel oil, and liquefied petroleum gas (or LPG). Many of the issues discussed in this note will, however, also apply to the controlled pricing of other energy prices (such as electricity and natural gas), which is also common in many countries.

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This study seeks to assess the current state of knowledge and contribute to the understanding of how fiscal policies and management interact with corruption issues by integrating concrete and practical issues with theoretical and quantitative analysis of their nature and consequences. The study presents a comprehensive analysis of corruption that not only highlights the problems, but also potential solutions for a broad range of fiscal policy and fiscal reform issues. The analysis and discussion is supported and clarified by relevant real-world examples and empirical analysis. In particular, country-specific examples prove to be quite useful to identify key issues or valuable lessons in minimizing corruption.