Revenue challenges in developing countries: can international assistance help?

Developing countries face significant challenges to raising revenue. Large informal sectors, complex and obscure laws, resource and aid curses, and weak bureaucratic administrative capacity are just some of the obstacles. External forces- from colonialism to international financial institutions - have also long affected the adoption and policy reform of taxes in developing countries. A burgeoning new line of research focuses on aid targeted specifically for taxation assistance, or tax aid. Tax aid prioritizes enhancing tax administration capacity, simplifying the tax code, introducing the value added tax, and offering technical support. International organizations, such as the World Bank, International Monetary Fund, and United Nations, are key players in the disbursement and direction of this assistance. Tax aid has been effective in generating domestic tax revenue, but through a reliance on indirect taxation. Confounding factors such as regime type, international market integration, and the income level of the recipient do moderate this relationship.