Foreign Aid and Domestic Revenue Mobilisation 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 effectiveness in conflict-affected countries. Although both aid and conflict have been identified as major determinants of tax performance, there is little agreement on the nature of their individual and joint effects on taxation. This study contributes to this debate by considering a sample of 123 developing countries over the period 1984 to 2014. Our findings show that aid granted during a period of conflict positively affects revenue collection, and this impact increases with technical assistance. A deeper analysis demonstrates a nonlinear relationship between aid provided during times of conflict and domestic revenue mobilisation. The institutional environment appears to be a factor that may mitigate, and even reverse, the nature of the relationship between aid and revenue mobilisation.