Technology has made the world a global village and continues to help emerging economies grow to catch up with the current technologies. In detail, public finance encompasses all government activities aimed at raising and spending money to deliver services and benefits, with redistributive purposes, to control their volatility of the business cycle. The effectiveness of how well the government does this depends on its ability to gather and process a vast array of information: company earnings, unemployment levels, workers' salaries. Digitalization is the integration of digital technologies into everyday life – has vastly increased our ability to collect and exploit this information. To help improve the economy there is a need for how public finance collection and spending need to be transparent and digitalization has helped improve this process.
Digitalization has increased the ability to exploit information to implement the government's macroeconomic policy. The ability of governments to use the vast amounts of information held in the private sector on financial transactions is already making fiscal policy more efficient and effective. Problems of access to digital technology, cybersecurity risks, and the difficulty of organizational change in the public sector may slow the pace at which these opportunities are exploited. The effectiveness of a government's fiscal policy depends on its capacity to act on the information collected from the economic actors. These include information on the incomes and assets of taxpayers, the level of unemployment, or the identity and circumstances of beneficiaries of social programs, actual and potential. In some emerging economies, digitalization is reshaping the basis upon which the way tax and spending policies are designed and carried out.
Digitalization has the potential to offer more efficient tools for existing policies and to introduce entirely new ones. However, there is the other side of the coin: digitalization has intensified concerns about privacy, confidentiality, and cybersecurity while adding to the more extensive debate over inequality and redistribution. The economic potential varies significantly, depending on a country’s starting position. Lower-income countries have the largest potential. Ethiopia, India, and Nigeria all have the opportunity to add 10 to 12 percent to their GDP, given the current low levels of financial inclusion and digital payments. Pakistan's GDP potential follows suit at 7 percent.
Middle-income countries such as Brazil, Kenya, and Mexico could add 4 to 5 percent to GDP, representing a considerable boost. Through digitalization, the private sector may adopt the innovation of better systems for implementing tax and spending policies. One of the first digital innovations for tax authorities has been electronic tax return filling, which has reduced the cost of compliance for taxpayers and government administration. The experimentation of this process has begun a decade ago for many countries. Governments are able to pre-populate tax returns thanks to access to that information so that taxpayers only need to verify the information. Global reporting standards have been introduced for the automatic exchange of information between tax authorities, allowing for greater control over the relocation of assets.
In many emerging economies, the opportunity to accelerate inclusive growth could be addressed rapidly and without the need for major investment in costly additional infrastructure. Mobile phones are key to this change. In emerging economies, nearly 80 percent of the adult population had a mobile phone in 2014, almost 90 percent have access to a network, and 3G or 4G coverage is growing. On the other hand, only 55 percent of the adults in emerging economies had financial accounts in 2014. In order for emerging economies to achieve their digital goals by 2030 the additional investment needed through 2030 to reach the SDGs for roads, electricity, water, and sanitation has been estimated at 2.7 percent of GDP per year for emerging markets and 9.8 percent of GDP per year for low-income countries. These demands present both challenges and opportunities. Infrastructure development needs adequate and timely available funds.
However, there is an opportunity to use data and new technology to improve the efficiency and quality of infrastructure projects, as well as many other areas of public finance. Digitalization is also allowing governments to track business activity electronically. The Brazilian Public System of Digital Bookkeeping (SPED) allows authorities to determine companies' tax obligations. China uses invoice-matching technology to verify that businesses claiming VAT credits or refunds on their purchases were charged the tax. In Kenya, taxes can be paid directly from a smartphone. In India, subsidies and welfare payments are sent directly to receivers' bank accounts, with unique biometric identifiers. Real-time information gathering on sales and wages gives tax authorities immediate insight into the state of many advanced economies.
Developing economies struggling to identify and help vulnerable populations may for instance benefit most from biometrics and information systems used to implement social programs. Other governments should consider the use of Machine learning (ML) and natural language processing (NLP) as two emerging technologies that are already having a big impact on many areas of economics and public policy. For example, it plays a role in public finance, particularly in the areas of forecasting, risk management, and project monitoring. On the other hand, there is a risk that the technologies will be used to replace human judgment completely and there is a risk that the use of these technologies will lead to a loss of privacy and confidentiality which has helped in the emergence of data intelligence