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Sovereign rents and the quality of tax policy and administration

  • Knack, Stephen

The availability of windfall revenues from natural resource exports or foreign aid potentially weakens governments'incentives to design efficient tax systems. Cross-country data for developing countries provide evidence for this hypothesis, using a World Bank indicator of"efficiency of revenue mobilization."Aid's negative effects on the quality of tax systems are robust to correcting for potential reverse causality, to changes in the sample, and to alternative estimation methods. Fuel export revenues are also associated with lower-quality tax policy and administration, but this finding is somewhat sensitive to outliers. Non-fuel resource exports, in contrast, show no relationship to the efficiency of revenue mobilization.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4773.

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Date of creation: 01 Nov 2008
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Handle: RePEc:wbk:wbrwps:4773
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  1. 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.
  2. Axel Dreher, 2009. "IMF conditionality: theory and evidence," Public Choice, Springer, vol. 141(1), pages 233-267, October.
  3. 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.
  4. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
  5. Carlos Leite & Jens Weidmann, 1999. "Does Mother Nature Corrupt: Natural Resources, Corruption, and Economic Growth," IMF Working Papers 99/85, International Monetary Fund.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. Jac C. Heckelman & Stephen Knack, 2008. "Foreign Aid and Market-Liberalizing Reform," Economica, London School of Economics and Political Science, vol. 75(299), pages 524-548, 08.
  12. Abhijit Sen Gupta, 2007. "Determinants of Tax Revenue Efforts in Developing Countries," IMF Working Papers 07/184, International Monetary Fund.
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