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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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  • Knack, Stephen, 2009. "Sovereign rents and quality of tax policy and administration," Journal of Comparative Economics, Elsevier, vol. 37(3), pages 359-371, September.
  • Handle: RePEc:eee:jcecon:v:37:y:2009:i:3:p:359-371
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    Cited by:

    1. Hermann D. Yohou & Michaël Goujon & Wautabouna Ouattara, 2016. "Heterogeneous Aid Effects on Tax Revenues: Accounting for Government Stability in WAEMU Countries," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 25(3), pages 468-498.
    2. Djedje Hermann YOHOU, 2015. "In Search of Fiscal Space in Africa: The Role of the Quality of Government Spending," Working Papers 201527, CERDI.
    3. Shantayanan Devarajan, Hélène Ehrhart, Tuan Minh Le, Gaël Raballan, 2011. " Direct Redistribution, Taxation, and Accountability in Oil-Rich Economies- A Proposal- Working Paper 281," Working Papers 281, Center for Global Development.
    4. Knack, Stephen, 2013. "Aid and donor trust in recipient country systems," Journal of Development Economics, Elsevier, vol. 101(C), pages 316-329.
    5. Crivelli, Ernesto & Gupta, Sanjeev, 2014. "Resource blessing, revenue curse? Domestic revenue effort in resource-rich countries," European Journal of Political Economy, Elsevier, vol. 35(C), pages 88-101.
    6. Djedje Hermann YOHOU & Michaël GOUJON, 2017. "Reassessing Tax Effort in Developing Countries: a Proposal of a Vulnerability-Adjusted Tax Effort Index (VATEI)," Working Papers P186, FERDI.
    7. 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.
    8. 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.
    9. Knack, Stephen, 2012. "When do donors trust recipient country systems ?," Policy Research Working Paper Series 6019, The World Bank.
    10. Djedje Hermann YOHOU & Michaël GOUJON & Bertrand LAPORTE & Samuel GUERINEAU, 2016. "Is Aid Unfriendly to Tax? African Evidence of Heterogeneous Direct and Indirect Effects," Working Papers 201608, CERDI.
    11. 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.
    12. Knack, Stephen, 2013. "It's only words : validating the CPIA governance assessments," Policy Research Working Paper Series 6526, The World Bank.

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