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Foreign Aid and Revenue

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  • Ernesto Crivelli
  • Sanjeev Gupta
  • Priscilla S. Muthoora
  • Dora Benedek

Abstract

This paper reexamines the relationship between aid and domestic tax revenues using a more recent and comprehensive dataset covering 118 countries for the period 1980 - 2009. Overall, our results support earlier findings of a negative association between net Official Development Assistance (ODA) and domestic tax revenues, but this relationship appears to have weakened in reflection of greater efforts at mobilizing domestic revenues in many countries. The composition of net ODA matters: ODA grants are associated with lower revenues, while ODA loans are not. The paper further finds that net ODA and grants are negatively associated with VAT, excise and income tax revenues, but have a positive relationship with trade taxes. Aid has a particularly strong negative effect on domestic tax revenues in low-income countries and in countries with relatively weak institutions.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/186.

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Length: 33
Date of creation: 01 Jul 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/186

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Keywords: Taxation; tax revenues; tax revenue; total tax revenue; trade taxes; tax administration; income taxes; tax policy; tax effort; domestic tax; fiscal effects of aid; income tax revenues; income groups; tax systems; excise taxes; fiscal affairs; tax structures; tax system; tax reform; tax evasion; foreign debt; tax ratio; tax collection; government expenditure; fiscal affairs department; tax identification number; tax structure; tax type; tax performance; determinants of tax revenue; vat revenue; tariff reduction; reduction in tax; tax exemption; higher tax revenues; fiscal deficit; tax administration reforms; excise tax; import taxes; tax bases; government budgets; fiscal response; tax expenditure; fiscal policy; tax revenue ratio; budget constraint; tax exemptions; vat rate; tax categories;

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References

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  1. Collier, Paul & Venables, Anthony J., 2011. "Illusory revenues: Import tariffs in resource-rich and aid-rich economies," Journal of Development Economics, Elsevier, vol. 94(2), pages 202-206, March.
  2. Heller, Peter S, 1975. "A Model of Public Fiscal Behavior in Developing Countries: Aid, Investment, and Taxation," American Economic Review, American Economic Association, vol. 65(3), pages 429-45, June.
  3. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  4. Paul Clist & Oliver Morrissey, 2011. "Aid and tax revenue: Signs of a positive effect since the 1980s," Journal of International Development, John Wiley & Sons, Ltd., vol. 23(2), pages 165-180, March.
  5. Osei, Robert & Morrissey, Oliver & Lloyd, Tim, 2005. "The Fiscal Effects of Aid in Ghana," Working Paper Series RP2005/61, World Institute for Development Economic Research (UNU-WIDER).
  6. Michael Keen & Mario Mansour, 2010. "Revenue Mobilisation in Sub-Saharan Africa: Challenges from Globalisation II - Corporate Taxation," Development Policy Review, Overseas Development Institute, vol. 28(5), pages 573-596, 09.
  7. 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.
  8. Michael Keen & Mario Mansour, 2010. "Revenue Mobilisation in Sub-Saharan Africa: Challenges from Globalisation I - Trade Reform," Development Policy Review, Overseas Development Institute, vol. 28(5), pages 553-571, 09.
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Cited by:
  1. Simplice A Asongu & Jellal Mohamed, 2013. "On the channels of foreign aid to corruption," Economics Bulletin, AccessEcon, vol. 33(3), pages 2191-2201.
  2. Perez Nino, Helena & Le Billon, Philippe, 2013. "Foreign aid, resource rents and institution-building in Mozambique and Angola," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  3. Sadegh Bakhtiari & Hojjat Izadkhasti & Seyed Komail Tayebi, 2013. "Crowding out Effect of Foreign Aid in Selected Developing Countries: Panel Data Evidence," Iranian Economic Review, Economics faculty of Tehran university, vol. 18(2), pages 51-64, spring.

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