Foreign aid and domestic taxation: Multiple sources, one conclusion

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Abstract

Influential research has argued that foreign aid displaces domestic tax revenue when it is given in the form of grants. These claims are based on data that are deeply problematic: several different sources are amalgamated into one dataset, with no apparent checks on compatibility. In this article, a variety of econometric strategies are used to overcome these issues of data quality. The weight of evidence points to a modest but positive effect from all foreign aid on domestic tax revenue. Fears over a negative effect for aid grants appear unwarranted, and are accounted for by the inappropriate use of data or endogeneity concerns.
Original languageEnglish
Pages (from-to)365-383
Number of pages19
JournalDevelopment Policy Review
Volume34
Issue number3
Early online date5 Apr 2016
DOIs
Publication statusPublished - May 2016

Keywords

  • Foreign Aid
  • Tax Revenue
  • Data Quality
  • MIMIC model

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