External Private Financing and Domestic Revenue Mobilization: A Dilemma?

By Hippolyte W. Balima, Deirdre Daly, Boileau Loko

November 8, 2020

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Hippolyte W. Balima, Deirdre Daly, and Boileau Loko. External Private Financing and Domestic Revenue Mobilization: A Dilemma?, (USA: International Monetary Fund, 2020) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Domestic revenue mobilization (DRM) is essential for low-income and emerging economies to sustainably finance their development needs and has received increasing attention in recent years. Studies have centered on structural factors such as the size and the structure of the economy, and the quality of institutions, notably to account for weaknesses in revenue administrations. Nevertheless, DRM can take time and carry political costs. Raising more financing through donors or private investors may be an easier and more politically palatable way for countries to meet spending needs. Using an impact assessment methodology and panel regressions over a sample of 72 developing countries, we found no evidence that access to bond markets or external commercial loans undermines the countries’ efforts to collect tax revenue. On the contrary, we found that access to markets has a positive impact on domestic revenue mobilization. Plausible explanations are that private financing must be repaid, and strong macroeconomic fundamentals are key for maintaining market access. We have also found that macroeconomic stability and the strength of institutions do matter for domestic revenue mobilization.

Subject: Bonds, Emerging and frontier financial markets, Financial institutions, Financial markets, Fiscal policy, International bonds, Revenue administration, Revenue mobilization

Keywords: Access country, Access group, Access unit, Bond markets, Bonds, Domestic revenue mobilization, Emerging and frontier financial markets, External commercial debt, External commercial debt., International bonds, Market access, Market discipline effect, Market financing, Revenue mobilization, Sub-Saharan Africa, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/230
Stock No:

WPIEA2020230
ISBN:

9781513560397
ISSN:

1018-5941

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