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FOREIGN AID AND DOMESTIC REVENUE MOBILIZATION IN CONFLICT-AFFECTED COUNTRIES
Abstract
In recent years, there has been increasing interest in the impact of conflict on taxation, and a few articles have focused on aid eff ectiveness in confl ict-aff ected countries. Both aid and confl ict have been identifi ed as major determinants of tax performance; however, there is little agreement on the nature of their individual and joint eff ects on taxation. This study contributes to this debate by considering a sample of 123 developing countries over the period 14 to 2014. Our fi ndings show that aid granted during a period of confl ict positively aff ects revenue collection, and this impact increases with technical assistance. A deeper analysis demonstrates a non-linear relationship between aid provided during confl ict times and domestic revenue mobilization. The institutional environment appears to be a factor that may mitigate, and even reverse, the nature of the relationship between aid and revenue mobilization.
Keywords: Domestic Revenue Mobilization, Tax, Foreign Aid, Technical Assistance, Confl ict, Institutional Environment, GMM-System, PSTR.