Heterogeneous Aid Effects on Tax Revenues: Accounting for Government Stability in WAEMU Countries

Yohou, Hermann D.; Goujon, Michaël; Ouattara, Wautabouna

doi:10.1093/jae/ejw003

Cited by 30 publications

(40 citation statements)

References 52 publications

(38 reference statements)

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“…Morrissey (2015) indicates three conclusions on the effects of foreign aid; "aid finances government spending; the extent to which aid is fungible is over-stated and even where it is fungible this does not appear to make the aid less effective; and there is no systematic effect of aid on tax effort" (Morrissey 2015, pp.98). Yohou et al (2016) and Clist (2016) largely support this assertion. The extent of the impact of foreign aid on the countries that receive them are often influenced by how their governments 'behave' since such aid goes through the public sector (McGillivray & Morrissey 2000).…”

Section: Determinants Of the Growth Of Government Spending -A Brief Smentioning

confidence: 67%

Explaining the Growth of Government Spending in Ghana

Obeng¹,

Sakyi²

2017

The Journal of Developing Areas

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Government spending is a reflection of government policy choices. However, the implications of government spending growth necessitate an understanding of the drivers of the growth of government spending. The present paper modifies the median voter model to explain the growth of government spending by introducing foreign aid, public debt, and democracy. The paper argues that these variables are important drivers of government spending for developing countries, hence a model explaining the growth of government spending of these group of countries that ignores the potential impact of foreign aid, public debt and democracy does not capture fully what determines the growth of government spending. Such a model is too simplistic and less relevant for policy purposes. The paper therefore makes use of annual time series data to determine the long-and shortrun impact of per capita income, tax share, minimum wage, population growth, foreign aid, public debt and democracy on the growth of government spending in Ghana over the period 1980-2012. The autoregressive distributed lag (ARDL) bounds test for cointegration and the error correction model (ECM) procedures were used for the estimation. Additionally, the paper provides results of generalized forecast error variance decomposition in order to determine the effect of innovations in both the dependent and independent variables on the dependent variable. The findings reveal that per capita income, tax share, population growth, minimum wage, foreign aid, public debt, and democracy are key determinants of the growth of government spending in the long-run. With the exception of minimum wage, these variables are also key determinants of the growth of government spending in the short-run. Variance decomposition results suggest innovations in per capita income and population growth generally account for the largest variations in government spending over the horizon considered. Also, innovations in foreign aid, public debt, and democracy are responsible for significant variations in government spending. The findings and policy recommendations of the paper provide vital information for policy implementation in Ghana.JEL Classifications: C22, F35, H50, H60

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Section: Determinants Of the Growth Of Government Spending -A Brief Smentioning

confidence: 67%

Explaining the Growth of Government Spending in Ghana

Obeng¹,

Sakyi²

2017

The Journal of Developing Areas

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“…At the same time, Ouattara (); Mavrotas and Ouattara (); Morrissey, Prichard, and Torrance (), have found a statistically nil effect of development aid on tax revenue. Yohou, Goujon, Michaël, and Ouattara () have reported that the effect of development aid on tax revenue performance is conditional on government stability: while aid directly lowers tax revenue performance, it enhances it for higher levels of government stability. Gnangnon and Brun () have examined the sustainability of development aid on non‐resource tax revenue performance of recipient countries and obtained evidence that such sustainability is dependent on countries' development level.…”

Section: Model Specificationmentioning

confidence: 99%

Trade openness, tax reform and tax revenue in developing countries

Gnangnon

Brun

2019

World Economy

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This article investigates empirically whether the effect of tax reform (involving the progressive replacement of trade tax revenue with domestic tax revenue) in developing countries' tax revenue performance (measured by tax revenue‐to‐GDP ratio) depends on the degree of trade openness of these countries. The analysis has used an unbalanced panel data set of 95 developing countries over the period 1981–2015 and the two‐system GMM approach. Results suggest that tax reform is positively and significantly associated with tax revenue performance in developing countries, with the magnitude of this positive effect increasing as countries experience a higher development level. Additionally, and more importantly, countries that further open up their economies to international trade enjoy a higher positive effect of tax reform on tax revenue than countries that experience a lower degree of trade openness. Therefore, these findings should help dissipate the concerns of policymakers in developing countries that greater openness to international trade would further erode their tax revenue, including by lowering their international trade tax revenue. In fact, the implementation of an appropriate tax reform in the context of greater trade openness would generate higher tax revenue, while concurrently allowing countries to reap the well‐known benefits of international trade.

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“…More recently, Yohou et al, (2016) find evidence -over a set of West African Countries-, that the impact of aid on tax revenue is gradual and varies across countries, depending on the level of government stability: aid appears to directly reduce tax revenue, but improves the latter for higher levels of government stability.…”

Section: Interaction Between Development Aid and Government Public Rementioning

confidence: 99%

“…The link between domestic public finance and other financing flows for development, including international public finance inflows (ODA) and international private inflows has been explored in the economic development literature (see for e.g., Grubert and Mutti, 1991;Brun et al, 2011a;Selaya and Sunesen, 2012;Morrissey, 2015;Yohou et al, 2016). In the meantime, many studies have been carried out on the effect of international trade openness on these different types of financing for development flows, notably government public revenue, development aid, and foreign investment (see for e.g., Dudley and Montmarquette, 1976;Neumayer, 2003a;Nashashibi and Bazoni, 1994;Alesina and Dollar, 2000;Khattry and Rao, 2002;Baunsgaard and Keen, 2010).…”

Section: Introductionmentioning

confidence: 99%

Does Trade Openness Contribute to Driving Financing Flows for Development?

Brun¹,

Gnangnon²

2017

WTO Working Papers

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Trade has been recognized in the 2030 development Agenda as well as in the Addis Ababa Agenda for Action as an important means for the implementation of the Sustainable Development Goals (SDGs). This paper questions whether trade openness could be an important driver of financing for development flows, notably development aid (ODA), Foreign Direct Investment (FDI) inflows, and government public revenue, the latter being the ultimate financing source for development for any country. The paper also takes advantage of the framework of analysis to investigate the interplay between these three types of financial flows. Relying on an unbalanced panel dataset comprising 125 countries, of which 37 are Least Developed Countries (LDCs), the empirical analysis uses the three stage least squares econometric approach and provides two important pieces of evidence: first, international trade openness is an important tool for driving financial flows for development, including government public revenue, development aid and FDI. As a result, it could contribute to mobilizing the substantial financial resources needed for development, including for the implementation of the SDGs. Second, there are strong interactions (complementarity and substitutability) between these three types of financing for development flows.

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Heterogeneous Aid Effects on Tax Revenues: Accounting for Government Stability in WAEMU Countries

Cited by 30 publications

References 52 publications

Explaining the Growth of Government Spending in Ghana

Explaining the Growth of Government Spending in Ghana

Trade openness, tax reform and tax revenue in developing countries

Does Trade Openness Contribute to Driving Financing Flows for Development?

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