Foreign aid and domestic taxation: Multiple sources, one conclusion

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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
Issue number3
Early online date5 Apr 2016
Publication statusPublished - May 2016


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

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