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Foreign aid and tax revenue in Uganda

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  • Hisali, Eria
  • Ddumba-Ssentamu, John

Abstract

This paper analyzes the tax revenue–aid relationship in Uganda using a framework in which fiscal targets and actual outturns differ. The results suggest that grants have a negative association with tax revenue but are offset by the positive association of loans to result in some modest increases in tax revenue in the long run. The coefficient on the per capita income variable suggests that the tax system is inelastic. The error correction model results capture, in a dynamic setting, the offsetting effects of per capita income on the one hand and aid on the other to result in stagnant tax revenue GDP ratio that has been observed in the recent past. Policies that reduce mutation of taxpayers and noncompliance will reduce the country's reliance on aid and its unwanted effects.

Suggested Citation

  • Hisali, Eria & Ddumba-Ssentamu, John, 2013. "Foreign aid and tax revenue in Uganda," Economic Modelling, Elsevier, vol. 30(C), pages 356-365.
    • Handle: RePEc:eee:ecmode:v:30:y:2013:i:c:p:356-365
    DOI: 10.1016/j.econmod.2012.09.012
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    Cited by:

    1. Mawejje, Joseph, 2019. "Natural resources governance and tax revenue mobilization in sub saharan Africa: The role of EITI," Resources Policy, Elsevier, vol. 62(C), pages 176-183.
    2. Giulia Mascagni, 2014. "Aid and Taxation: Evidence from Ethiopia," Working Paper Series 7314, Department of Economics, University of Sussex Business School.
    3. Kim, Sang-Kee & Kim, Young-Han, 2016. "Is tied aid bad for the recipient countries?," Economic Modelling, Elsevier, vol. 53(C), pages 289-301.
    4. Manamba Epaphra & Lucas E. Kaaya, 2020. "Tax Revenue Effect of Sectoral Growth and Public Expenditure in Tanzania: An application of Autoregressive Distributed Lag Model," Romanian Economic Business Review, Romanian-American University, vol. 15(3), pages 81-120, September.
    5. Joseph Mawejje & Ezra Francis Munyambonera, 2016. "Tax Revenue Effects of Sectoral Growth and Public Expenditure in Uganda," South African Journal of Economics, Economic Society of South Africa, vol. 84(4), pages 538-554, December.
    6. BAYALE, Nimonka, 2019. "Effet de l’aide publique au développement sur la mobilisation des ressources fiscales dans les pays de l’UEMOA [Effect of foreign aid on fiscal resources mobilization in WAEMU countries]," MPRA Paper 92214, University Library of Munich, Germany, revised 03 Feb 2019.
    7. 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.
    8. Joseph Mawejje & Nicholas M. Odhiambo, 2021. "Uganda's fiscal policy reforms: What have we learned?," Public Budgeting & Finance, Wiley Blackwell, vol. 41(2), pages 89-107, June.

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    Keywords

    Tax revenue; Foreign aid; Uganda;
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