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Is the impact of development aid on government revenue sustainable? An empirical assessment

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  • Gnangnon, Sèna Kimm
  • Brun, Jean-François

Abstract

This paper contributes to the public finance literature that examines the impact of foreign aid on government revenue by assessing whether the impact of development aid (if any at all) on government revenue, including non-resource tax revenue is sustainable. The study is carried out over a panel dataset comprising 148 countries of which 40 Least developed countries (LDCs) and over the period 1980–2013 as well as the sub-period 1990–2013. The empirical results show that the sustainability of development aid on non-resource tax revenue depends on countries’ level of economic development proxied by their real per capita income. In particular, for LDCs, we obtain that on average, half of the impact of development aid inflows is felt within a very short time-period, that is, two or three years depending on the period considered. This indicates that for these countries, the impact of aid on non-resource tax revenue is yet positive, but not really sustainable, i.e., persistent over time.

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  • Gnangnon, Sèna Kimm & Brun, Jean-François, 2018. "Is the impact of development aid on government revenue sustainable? An empirical assessment," The Quarterly Review of Economics and Finance, Elsevier, vol. 67(C), pages 311-325.
    • Handle: RePEc:eee:quaeco:v:67:y:2018:i:c:p:311-325
    DOI: 10.1016/j.qref.2017.07.009
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    Cited by:

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    2. Jean-François Brun & Sèna Kimm Gnangnon, 2019. "Tax reform, public revenue and public revenue instability in developing countries: Does development aid matter?," Working Papers halshs-02089734, HAL.
    3. Sèna Kimm Gnangnon, 2022. "Does Poverty Matter for Tax Revenue Performance in Developing Countries?," South Asian Journal of Macroeconomics and Public Finance, , vol. 11(1), pages 7-38, June.
    4. 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).
    5. Jean-François Brun & Sèna Kimm Gnangnon, 2019. "Tax reform, public revenue and public revenue instability in developing countries: Does development aid matter?," CERDI Working papers halshs-02089734, HAL.
    6. Kaya, Ilker & Kaya, Ozgur, 2020. "Foreign aid, institutional quality and government fiscal behavior in emerging economies: An empirical investigation," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 59-67.
    7. Adegboye, Alex & Uwuigbe, Uwalomwa & Ojeka, Stephen & Uwuigbe, Olubukunola & Dahunsi, Olajide & Adegboye, Kofo, 2022. "Driving information communication technology for tax revenue mobilization in Sub-Saharan Africa," Telecommunications Policy, Elsevier, vol. 46(7).
    8. 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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    More about this item

    Keywords

    Development aid; Non-resource tax revenue; Sustainability;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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