Foreign Aid and Revenue Response Does the Composition of Aid Matter?

23 Pages Posted: 3 Feb 2006

See all articles by Sanjeev Gupta

Sanjeev Gupta

International Monetary Fund (IMF) - Fiscal Affairs Department

Benedict Clements

International Monetary Fund (IMF) - African Department

Alexander Pivovarsky

Harvard University

Erwin R. Tiongson

Georgetown University - Edmund A. Walsh School of Foreign Service (SFS); Institute for the Study of Labor (IZA); University College London - CReAM - Centre for Research and Analysis of Migration; Asian Institute of Management

Date Written: September 2003

Abstract

This paper examines the revenue response to inflows of foreign aid in 107 countries during the period 1970-2000. In particular, it investigates whether the impact of aid on the revenue effort depends on the composition of aid (grants vis-à-vis loans). The results indicate that while concessional loans are associated with higher domestic revenue mobilization, the opposite is true of grants. On average, the dampening effect of grants on the revenue effort is modest. However, for those countries plagued by high levels of corruption, our results suggest that the decline in revenues completely offsets the increase in grants. The results are robust to various specifications.

Keywords: foreign aid loans grants revenue

JEL Classification: F35 H20

Suggested Citation

Gupta, Sanjeev and Clements, Benedict and Pivovarsky, Alexander and Tiongson, Erwin R., Foreign Aid and Revenue Response Does the Composition of Aid Matter? (September 2003). IMF Working Paper, Vol. , pp. 1-23, 2003. Available at SSRN: https://ssrn.com/abstract=880236

Sanjeev Gupta (Contact Author)

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

Benedict Clements

International Monetary Fund (IMF) - African Department ( email )

1700 19th Street, NW
Washington, DC 20431
United States

Alexander Pivovarsky

Harvard University ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Erwin R. Tiongson

Georgetown University - Edmund A. Walsh School of Foreign Service (SFS) ( email )

Washington, DC 20057
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University College London - CReAM - Centre for Research and Analysis of Migration ( email )

Drayton House
30 Gordon Street
London, WC1H 0AX
United Kingdom

Asian Institute of Management ( email )

123 Paseo de Roxas
Makati, 1260
Philippines

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