Foreign Aid and Revenue Response Does the Composition of Aid Matter?

By S. Gupta, Benedict Clements, Alexander Pivovarsky, Erwin R. Tiongson. Social Science Research Network, 2003

279 citations recorded by the source corpus.

This paper examines the revenue response to inflows of foreign aid in 107 countries during the period 1970-2000. In particular, it investigates whether the impact of aid on the revenue effort depends on the composition of aid (grants vis-a-vis loans). The results indicate that while concessional loans are associated with higher domestic revenue mobilization, the opposite is true of grants. On average, the dampening effect of grants on the revenue effort is modest. However, for those countries plagued by high levels of corruption, our results suggest that the decline in revenues completely offsets the increase in grants. The results are robust to various specifications.

Subfields: Development, Information Systems, Safety Research

View Paper: https://www.semanticscholar.org/paper/5f96925d76cf88aa17a422db645522c06d65bb09

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Development

1. W. Prichard
2. A. Goodall
3. Alex Cobham
4. T. Mkandawire

In Information Systems

1. W. Prichard
2. A. Goodall
3. Alex Cobham
4. T. Mkandawire

In Safety Research

1. Alex Cobham
2. T. Mkandawire

Citations in the corpus

• What Undermines Aid's Impact on Growth? (2005, unknown): “dependency (see Azam, Devarajan, and O’Connell, 1997, Adam and O’Connell, 1999, and Gupta et. al., 2004 ).”
• The ICTD Government Revenue Dataset (2014, background): “The most widely cited study is that of Gupta et al. (2004), who reported evidence that aid grants have a statistically significant negative impact on domestic tax collection, while loans do not have the same negative impact.”
• Capital Structure and Sustainability: An Empirical Study of Microfinance Institutions (2012, background): “Thus, within the context of the lending institution capital structure discussion, one is required to consider issues similar to the grant versus concessional loan debate in the foreign aid literature (e.g., Gupta et al., 2003; Schmidt, 1964).”
• Roads out of poverty? Assessing the links between aid, public investment, growth, and poverty reduction (2005, unknown): “…reduce their tax collection effort.1 Others find that shortfalls in aid—depending on its composition— tend on the contrary to translate into shortfalls in domestic revenue (Gupta et al. (2003)), despite the fact that aid appears to be more volatile than domestic revenues (Bulir and Hamann (2003)).”
• Determinants of Tax Revenue Efforts in Developing Countries (2007, background): “For example, Gupta et al. (2004) find that concessional loans are associated with higher domestic revenue mobilization, while grants have the opposite affect.”
• On Tax Efforts and Colonial Heritage in Africa (2010, background): “…argues that predation and war increase the need for tax revenue and provide the state both the political basis and authority to tax its citizens (Herbst, 1990; Thies, 2005, 2007).19 Inflation (INFLATION) also has ambiguous effects, although it is frequently argued that for developing…”