Aid, Taxation and Development in Sub‐Saharan Africa

Abstract

External aid donors have gradually shifted from a benign view of the African state to one that presumes a con¯ict of interest between the state and its own private sector. What are the implications of this diagnosis for the design of aid programs? We develop a model that locates slow growth in the overly narrow interests of a political elite. We study the impact of aid on policy choice and private investment and the role of conditionality in securing the gains from aid. The results capture key features of the current diagnosis while underscoring the need for more sophisticated treatments of domestic political institutions, institutional change, and donor motivations.

The political economy of state failure

“…Adam and O'Connell (1999) develop a simple model in which the ruling elite has a choice between a national public good and redistribution towards itself. The smaller the size of the elite the stronger is the incentive to opt for redistribution.…”

Aid and the Delegated Fight Against Terrorism

“…The basic structure of the theoretical models of aid views the aid relationship in a contract-theoretic framework where the recipient government is an agent who is supposed to perform some tasks on behalf of a foreign power, the donor. Both players have some common interest, which is widely assumed to be poverty alleviation, albeit with different weights (Adam and O'Connell, 1999, Azam and Laffont, 2003, Svensson, 2000. Then, the aim of the analysis is to bring out the implementation problems to be solved in order for aid to be effective, by the donor's standards.…”

Impact of Foreign Aid and Foreign Direct Investment on Economic Growth: Evidence from Sub-Saharan African Countries

“…According to this view, foreign aid increases a government's resource envelope, which often leads to a reduced government efforts to revenue collection from taxation. The country's mechanism of raising tax may decline, eliciting the need for additional aid while dissipating the short-term beneficial effects of aid and creating a culture of dependency (Adam and O'Connel 1999). Most economists who disapproved foreign aid as means of promoting economic prosperity in poor countries associate it with reduced government discipline (Levy 1988).…”