Foreign Aid and Revenue Response: Does the Composition of Aid Matter?
IMF Working Papers, September 1, 2003
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Bibliographic details
- Authors: Alexander Pivovarsky, Benedict J. Clements, Sanjeev Gupta, Erwin H Tiongson
- Published: September 1, 2003
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451858839.001
Overview
- Study period: 1970–2000.
- Sample: 107 countries.
- Authors: Alexander Pivovarsky, Benedict J. Clements, Sanjeev Gupta, Erwin H Tiongson.
- Publication: IMF Working Paper No. 2003/176.
Research question and approach
- Investigates whether the impact of foreign aid on the revenue effort depends on the composition of aid (grants vis-à-vis loans).
- Focuses on the revenue response to inflows of foreign aid across the sample period and countries.
Key findings
- Concessional loans are associated with higher domestic revenue mobilization.
- Grants are associated with lower domestic revenue mobilization (the opposite effect to concessional loans).
- On average, the dampening effect of grants on the revenue effort is modest.
- For countries plagued by high levels of corruption, the decline in revenues completely offsets the increase in grants.
- Results are robust to various specifications.
Implications for policy and analysis
- The composition of aid (grants versus concessional loans) matters for domestic revenue mobilization strategies.
- Anti-corruption efforts may be critical to ensuring that grants do not lead to net revenue declines in highly corrupt environments.
- Policymakers and donors should consider the interaction between aid composition and governance when designing aid programs to avoid unintended negative effects on revenue effort.
Authors: Alexander Pivovarsky, Benedict J. Clements, Sanjeev Gupta, Erwin H Tiongson; September 1, 2003.
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- Foreign Aid and Revenue Response: Does the Composition of Aid Matter? - WP/03/176