Aid and tax revenue: Signs of a positive effect since the 1980s

Paul Clist · Oliver Morrissey

144 citations0/0 files storedJournal of International Development

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International Development and Aid Economic and Fiscal Studies Fiscal Policies and Political Economy

Abstract

This paper addresses the effect of aid loans and grants on tax effort using data for 82 developing countries over 1970–2005. We find no robust evidence for a negative effect of aid (grants or loans) on the tax/GDP ratio, other than a contemporaneous correlation, but find some evidence that the effect of grants on tax revenue is positive (if significant) since the mid 1980s and that grants tend to increase tax revenue over the medium term. For poor aid recipients, grants are to be preferred to loans because they create no debt and have no adverse fiscal effects. Copyright © 2009 John Wiley & Sons, Ltd.

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References

2001Econometric Analysis of Cross Section and Panel Data 2003Testing for Serial Correlation in Linear Panel-data Models 2004Aid, Poverty Reduction and the ‘New Conditionality’2003Aid Volatility: An Empirical Assessment 2005Aid, Government Expenditure, and Aggregate Welfare 2003Foreign Aid and Revenue Response

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