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Does Foreign Aid Displace Domestic Taxation?

Author

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  • Carter Patrick

    (Department of Economics, 8 Woodland Road, Bristol, Avon BS8 1TN, UK)

Abstract

The existence of a negative relationship between aid and taxation would have far-reaching implications for international development agencies. This paper applies some recent methodological advances to the question and also discusses a range of problems with existing research. Previous results, which tend to show a negative relationship, are often based on econometric methods that rest on potentially restrictive assumptions. When more general methods, Panel Time Series estimators and the Group Fixed Effects estimator, are applied, there is little evidence that aid displaces domestic taxation.

Suggested Citation

  • Carter Patrick, 2013. "Does Foreign Aid Displace Domestic Taxation?," Journal of Globalization and Development, De Gruyter, vol. 4(1), pages 1-47, August.
    • Handle: RePEc:bpj:globdv:v:4:y:2013:i:1:p:1-47:n:4
    DOI: 10.1515/jgd-2013-0023
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    2. Émilie Caldeira & Anne-Marie Geourjon & Grégoire Rota-Graziosi, 2020. "Taxing aid: the end of a paradox?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(1), pages 240-255, February.
    3. Abrams M.E. Tagem, 2017. "The economics and politics of foreign aid and domestic revenue," WIDER Working Paper Series wp-2017-180, World Institute for Development Economic Research (UNU-WIDER).
    4. Giulia Mascagni, 2014. "Aid and Taxation: Evidence from Ethiopia," Working Paper Series 7314, Department of Economics, University of Sussex Business School.
    5. Abreham Adera, 2024. "Chinese Aid Projects and Local Tax Attitudes: Evidence from Africa," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 36(1), pages 102-134, February.
    6. Ernesto Crivelli & Sanjeev Gupta, 2017. "Does Conditionality Mitigate the Potential Negative Effect of Aid on Revenues?," Journal of Development Studies, Taylor & Francis Journals, vol. 53(7), pages 1057-1074, July.
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    8. Giulia Mascagni & Emilija Timmis, 2017. "The Fiscal Effects of Aid in Ethiopia: Evidence from CVAR Applications," Journal of Development Studies, Taylor & Francis Journals, vol. 53(7), pages 1037-1056, July.
    9. 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.
    10. Łukasz Marć, 2017. "The Impact of Aid on Total Government Expenditures: New Evidence on Fungibility," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 627-663, August.
    11. Jean-Louis Combes & Rasmane Ouedraogo & Sampawende J.-A. Tapsoba, 2016. "Structural shifts in aid dependency and fiscal policy in developing countries," Applied Economics, Taylor & Francis Journals, vol. 48(46), pages 4426-4446, October.
    12. repec:idq:ictduk:13654 is not listed on IDEAS
    13. Bayale, Nimonka, 2020. "Foreign Aid and Fiscal Resources Mobilization in WAEMU Countries: Ambiguous Effects and New Questions," African Journal of Economic Review, African Journal of Economic Review, vol. 8(2), July.
    14. Liu, Feng & Liu, Fengrui & Huang, Jiqiang & Dong, Haoran, 2024. "Aid and national tax capacity: Empirical evidence from Chinese aid," China Economic Review, Elsevier, vol. 85(C).
    15. Abrams M.E. Tagem & Oliver Morrissey, 2021. "What are the drivers of tax capacity in sub-Saharan Africa?," WIDER Working Paper Series wp-2021-161, World Institute for Development Economic Research (UNU-WIDER).
    16. repec:idq:ictduk:3948 is not listed on IDEAS
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    18. Abrams M.E. Tagem, 2017. "The economics and politics of foreign aid and domestic revenue," WIDER Working Paper Series 180, World Institute for Development Economic Research (UNU-WIDER).
    19. Prichard, Wilson, 2016. "Reassessing Tax and Development Research: A New Dataset, New Findings, and Lessons for Research," World Development, Elsevier, vol. 80(C), pages 48-60.
    20. Candel-Sánchez Francisco, 2014. "Incentives for Conditional Aid Effectiveness," Journal of Globalization and Development, De Gruyter, vol. 5(1), pages 75-102, June.
    21. Abrams M. E. Tagem, 2023. "The dynamic effects of aid and taxes on government spending," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(6), pages 1656-1687, December.

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