Journal Article

Aid and domestic resource mobilization with a focus on Sub-Saharan Africa

Oliver Morrissey

in Oxford Review of Economic Policy

Published on behalf of The Oxford Review of Economic Policy Ltd

Volume 31, issue 3-4, pages 447-461
Published in print January 2015 | ISSN: 0266-903X
Published online December 2015 | e-ISSN: 1460-2121 | DOI: https://dx.doi.org/10.1093/oxrep/grv029
Aid and domestic resource mobilization with a focus on Sub-Saharan Africa

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  • Development Planning and Policy
  • Taxation, Subsidies, and Revenue
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Increasing tax revenues in low-income countries is essential to address future development finance requirements. This is particularly important for aid recipients, the focus of this paper. Theory shows that although there are many ways in which aid can have indirect effects on tax revenue, the direct effects arise because aid and tax are alternative sources of revenue and political economy factors influence the choices made by government. Aid may discourage tax effort if viewed as a politically less costly source of revenue. Under different conditions, the policies and reforms associated with aid may increase revenue, through promoting growth, encouraging more efficient tax structures, or supporting reforms to tax administration. While cross-country evidence reveals no systematic pattern, country studies show that aid can be associated with administrative and efficiency reforms to increase tax revenue. The conclusion discusses how aid and donors can promote increasing domestic tax revenue.

Keywords: aid; taxation; fiscal response; tax reform; F35; H20; O23

Journal Article.  7856 words. 

Subjects: Development Planning and Policy ; Taxation, Subsidies, and Revenue ; International Finance

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