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Foreign Aid and Revenue Response

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Author Info

  • Alexander Pivovarsky
  • Benedict J. Clements
  • Sanjeev Gupta
  • Erwin Tiongson
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    Abstract

    This paper examines the revenue response to inflows of foreign aid in 107 countries during the period 1970–2000, In particular, it investigates whether the impact of aid on the revenue effort depends on the composition of aid (grants vis-à-vis loans). The results indicate that while concessional loans are associated with higher domestic revenue mobilization, the opposite is true of grants. On average, the dampening effect of grants on the revenue effort is modest. However, for those countries plagued by high levels of corruption, our results suggest that the decline in revenues completely offsets the increase in grants. The results are robust to various specifications.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/176.

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    Length: 23
    Date of creation: 01 Sep 2003
    Date of revision:
    Handle: RePEc:imf:imfwpa:03/176

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    Related research

    Keywords: Economic models; foreign aid; tax effort; foreign debt; domestic borrowing; tax revenue; tax revenues; fiscal behavior; fiscal response; budget constraint; taxation; repayments; tax burden; tax rates; tax compliance; government expenditure; revenue collection; public debt; debt relief; government spending; government budget; tax system; local taxes; central government budget; debt accumulation; reduction in tax; public expenditures; tax administration; budget support; public budget; fiscal consequences; debt burden; foreign loans; fiscal effects of aid; tax ratios; public fiscal behavior; fiscal affairs; foreign borrowing; debt stock; structural adjustment; fiscal implications; increase in expenditures; debt negotiations; public sector fiscal behaviour; fiscal affairs department; debt sustainability; public sector borrowing;

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