The Marines have a huge funding. This is because they belong to the World Government. Their source of income draws in from taxes from the nations in the Grand Line, and also from the World Nobles. I'm sure the Celestial Dragons throw out huge sums of money to ensure their safety and to pamper their tantrums. This gives a better view point of how the money flows.
Now when the bounties are higher, it doesn't just show how troublesome of a threat they are to the World Government, but it also shows how notorious they are among other pirates.
Big fish are often taken out by big shots. If a pirate kills a pirate, surely they won't go running about asking for the bounty to be rewarded to them. Because then they'll be caught by the Marines. And with powerhouses like the Admirals, extreme threats are taken care of efficiently. In such a scenario, the bounty money needn't be awarded.
There has been no canonical statement in the series which shows that a bounty of over 1 million Beri was rewarded.
Bonus content from Wikia:
Bounties are issued with a "Dead or Alive" disclaimer, meaning the reward will be paid so long as the threat gets eliminated, but Baroque Works agents state that bounties are usually only paid in full if the criminal is captured alive; up to 30% of the bounty money may be lost by bringing in someone dead, since no public execution can be held.