External Private Financing and Domestic Revenue Mobilization: A Dilemma?

30 Pages Posted: 5 Jan 2021

See all articles by Hippolyte Balima

Hippolyte Balima

International Monetary Fund (IMF)

Deirdre Daly

Federal Reserve Bank of New York

Boileau Loko

International Monetary Fund (IMF)

Date Written: November 1, 2020

Abstract

Domestic revenue mobilization (DRM) is essential for low-income and emerging economies to sustainably finance their development needs and has received increasing attention in recent years. Studies have centered on structural factors such as the size and the structure of the economy, and the quality of institutions, notably to account for weaknesses in revenue administrations. Nevertheless, DRM can take time and carry political costs. Raising more financing through donors or private investors may be an easier and more politically palatable way for countries to meet spending needs. Using an impact assessment methodology and panel regressions over a sample of 72 developing countries, we found no evidence that access to bond markets or external commercial loans undermines the countries' efforts to collect tax revenue. On the contrary, we found that access to markets has a positive impact on domestic revenue mobilization. Plausible explanations are that private financing must be repaid, and strong macroeconomic fundamentals are key for maintaining market access. We have also found that macroeconomic stability and the strength of institutions do matter for domestic revenue mobilization.

JEL Classification: E60, G10, H20, E62

Suggested Citation

Balima, Hippolyte and Daly, Deirdre and Loko, Boileau, External Private Financing and Domestic Revenue Mobilization: A Dilemma? (November 1, 2020). IMF Working Paper No. 20/230, Available at SSRN: https://ssrn.com/abstract=3758063

Hippolyte Balima (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Deirdre Daly

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Boileau Loko

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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