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

By Alexander Pivovarsky, Benedict J. Clements, Sanjeev Gupta, Erwin H Tiongson

September 1, 2003

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Alexander Pivovarsky, Benedict J. Clements, Sanjeev Gupta, and Erwin H Tiongson. Foreign Aid and Revenue Response: Does the Composition of Aid Matter?, (USA: International Monetary Fund, 2003) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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-à-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.

Subject: Corruption, Crime, External debt, Financial institutions, Foreign aid, Loans, National accounts, Personal income

Keywords: Aid-revenue nexus, Corruption, Foreign aid, Grants, Loan, Loans, Log revenue, Per capita income, Personal income, Revenue, Revenue collection, Revenue effort, Revenue response, South Asia, WP

Publication Details

Pages:

23
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/176
Stock No:

WPIEA1762003
ISBN:

9781451858839
ISSN:

1018-5941

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