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The Effects of Aid on Fiscal Capacity: An econometric analysis on African countries (1960-2015)

Kovalainen, Noora LU (2023) EKHS22 20231
Department of Economic History
Abstract (Swedish)
Low tax revenues in many African countries are hindering sustained economic development and aid could have an inhibiting effect on the development of fiscal capacity. This paper will use newly published high-quality data on tax revenues to dive deeper into the effects of aid on hard-to-collect taxes in Africa between 1960-2015. Previous aid literature has mostly focused on short-term effects on revenue collection but by looking at fiscal capacity this paper is able to contribute to the literature on the effects of aid and its components on more long-term institutional development. Using a fixed effects panel regression model, the results of the analysis show that aid has an overall positive effect on a country’s fiscal capacity. The... (More)
Low tax revenues in many African countries are hindering sustained economic development and aid could have an inhibiting effect on the development of fiscal capacity. This paper will use newly published high-quality data on tax revenues to dive deeper into the effects of aid on hard-to-collect taxes in Africa between 1960-2015. Previous aid literature has mostly focused on short-term effects on revenue collection but by looking at fiscal capacity this paper is able to contribute to the literature on the effects of aid and its components on more long-term institutional development. Using a fixed effects panel regression model, the results of the analysis show that aid has an overall positive effect on a country’s fiscal capacity. The results provide further evidence on the larger positive effects of loans on fiscal capacity compared to grants. Furthermore, the paper presents weak evidence of improvements in the effects of aid on fiscal capacity. The paper argues that aid has not created dependencies in Africa by undermining fiscal capacity development. (Less)
Please use this url to cite or link to this publication:
author
Kovalainen, Noora LU
supervisor
organization
course
EKHS22 20231
year
type
H2 - Master's Degree (Two Years)
subject
keywords
State Capacity, Fiscal capacity, Aid, Africa
language
English
id
9133049
date added to LUP
2023-09-12 10:22:32
date last changed
2023-09-12 10:22:32
@misc{9133049,
  abstract     = {{Low tax revenues in many African countries are hindering sustained economic development and aid could have an inhibiting effect on the development of fiscal capacity. This paper will use newly published high-quality data on tax revenues to dive deeper into the effects of aid on hard-to-collect taxes in Africa between 1960-2015. Previous aid literature has mostly focused on short-term effects on revenue collection but by looking at fiscal capacity this paper is able to contribute to the literature on the effects of aid and its components on more long-term institutional development. Using a fixed effects panel regression model, the results of the analysis show that aid has an overall positive effect on a country’s fiscal capacity. The results provide further evidence on the larger positive effects of loans on fiscal capacity compared to grants. Furthermore, the paper presents weak evidence of improvements in the effects of aid on fiscal capacity. The paper argues that aid has not created dependencies in Africa by undermining fiscal capacity development.}},
  author       = {{Kovalainen, Noora}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{The Effects of Aid on Fiscal Capacity: An econometric analysis on African countries (1960-2015)}},
  year         = {{2023}},
}