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Sovereign rents and quality of tax policy and administration

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  • Knack, Stephen

Abstract

Windfall revenues from foreign aid or natural resource exports can weaken governments' incentives to design or maintain efficient tax systems. Cross-country data for developing countries provide evidence for this hypothesis, using a World Bank indicator on "efficiency of revenue mobilization." Aid's negative effects on quality of tax systems are robust to correcting for potential reverse causality, to changes in the sample, and to alternative estimation methods. Revenues from natural resources are also associated with lower-quality tax systems, but results are somewhat sensitive to the choice of resource dependence indicators, and to a few extreme values in the data. Disaggregating by resource type, revenues from fuel exports are found to be more strongly associated than revenues from metals and ores exports with inefficient tax systems.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 37 (2009)
Issue (Month): 3 (September)
Pages: 359-371

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Handle: RePEc:eee:jcecon:v:37:y:2009:i:3:p:359-371

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Web page: http://www.elsevier.com/locate/inca/622864

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Keywords: Foreign aid Governance Revenue mobilization Tax policy Tax administration;

References

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  1. Simeon Djankov & Jose Montalvo & Marta Reynal-Querol, 2008. "The curse of aid," Journal of Economic Growth, Springer, vol. 13(3), pages 169-194, September.
  2. Anne D. Boschini & Jan Pettersson & Jesper Roine, 2006. "Resource curse or not: A question of appropriability," DEGIT Conference Papers c011_050, DEGIT, Dynamics, Economic Growth, and International Trade.
  3. Brautigam, Deborah A & Knack, Stephen, 2004. "Foreign Aid, Institutions, and Governance in Sub-Saharan Africa," Economic Development and Cultural Change, University of Chicago Press, vol. 52(2), pages 255-85, January.
  4. Janet Gale Stotsky & Asegedech WoldeMariam, 1997. "Tax Effort in Sub-Saharan Africa," IMF Working Papers 97/107, International Monetary Fund.
  5. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
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  7. Collier, Paul, 2006. "Is Aid Oil? An Analysis Of Whether Africa Can Absorb More Aid," World Development, Elsevier, vol. 34(9), pages 1482-1497, September.
  8. Dhaneshwar Ghura, 1998. "Tax Revenue in Sub-Saharan Africa - Effects of Economic Policies and Corruption," IMF Working Papers 98/135, International Monetary Fund.
  9. Lederman, Daniel & Maloney, William F., 2008. "In search of the missing resource curse," Policy Research Working Paper Series 4766, The World Bank.
  10. Stephen Knack, 2001. "Aid Dependence and the Quality of Governance: Cross-Country Empirical Tests," Southern Economic Journal, Southern Economic Association, vol. 68(2), pages 310-329, October.
  11. Sachs, Jeffrey D. & Warner, Andrew M., 2001. "The curse of natural resources," European Economic Review, Elsevier, vol. 45(4-6), pages 827-838, May.
  12. Jonathan Isham & Michael Woolcock & Lant Pritchett & Gwen Busby, 2005. "The Varieties of Resource Experience: Natural Resource Export Structures and the Political Economy of Economic Growth," World Bank Economic Review, World Bank Group, vol. 19(2), pages 141-174.
  13. Todd Moss & Gunilla Pettersson & Nicolas van de Walle, 2006. "An Aid-Institutions Paradox? A Review Essay on Aid Dependency and State Building in Sub-Saharan Africa," Working Papers 74, Center for Global Development.
  14. William Easterly, 2002. "The cartel of good intentions: The problem of bureaucracy in foreign aid," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 5(4), pages 223-250.
  15. Simeon Djankov & Jose G. Montalvo & Marta Reynal-Querol, 2006. "Does Foreign Aid Help," Cato Journal, Cato Journal, Cato Institute, vol. 26(1), pages 1-28, Winter.
  16. Axel Dreher, 2009. "IMF conditionality: theory and evidence," Public Choice, Springer, vol. 141(1), pages 233-267, October.
  17. Rafael Di Tella & Alberto Ades, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September.
  18. Svensson, Jakob, 2000. "Foreign aid and rent-seeking," Journal of International Economics, Elsevier, vol. 51(2), pages 437-461, August.
  19. Hamilton, Kirk & Clemens, Michael, 1999. "Genuine Savings Rates in Developing Countries," World Bank Economic Review, World Bank Group, vol. 13(2), pages 333-56, May.
  20. Feyzioglu, Tarhan & Swaroop, Vinaya & Zhu, Min, 1998. "A Panel Data Analysis of the Fungibility of Foreign Aid," World Bank Economic Review, World Bank Group, vol. 12(1), pages 29-58, January.
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Citations

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Cited by:
  1. Tierney, Michael J. & Nielson, Daniel L. & Hawkins, Darren G. & Roberts, J. Timmons & Findley, Michael G. & Powers, Ryan M. & Parks, Bradley & Wilson, Sven E. & Hicks, Robert L., 2011. "More Dollars than Sense: Refining Our Knowledge of Development Finance Using AidData," World Development, Elsevier, vol. 39(11), pages 1891-1906.
  2. Knack, Stephen, 2013. "Aid and donor trust in recipient country systems," Journal of Development Economics, Elsevier, vol. 101(C), pages 316-329.
  3. Blanca MORENO DODSON & Grégoire Rota-Graziosi & Clémence Vergne, 2012. "Breaking the wave of democracy: The effect of foreign aid on the incumbent's re-election probability," Working Papers halshs-00722375, HAL.
  4. Knack, Stephen, 2012. "When do donors trust recipient country systems ?," Policy Research Working Paper Series 6019, The World Bank.
  5. Knack, Stephen, 2013. "It's only words : validating the CPIA governance assessments," Policy Research Working Paper Series 6526, The World Bank.
  6. Baskaran, Thushyanthan & Bigsten, Arne, 2011. "Fiscal capacity and government accountability in sub-Saharan Africa," Working Papers in Economics 506, University of Gothenburg, Department of Economics.

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