FinAid

Project Details

Researcher          Paul Clist
Location Global
Duration March 2013 – August 2013

Overview

Does foreign aid displace domestic tax revenue? This issue is important for two main reasons. First, donors wish to know that their funding provides additional resources to tackle poverty rather than finance tax cuts. Second, if aid reduces the tax revenue of developing countries then it may weaken the link between the citizen and the state, with negative (long term) consequences for governance.

The empirical research will be organised as follows:   

  • The first stage of the research will be to replicate their analysis in order to fully understand the decisions they have made (e.g. identifying their 81 instruments). 
  • The second stage of the research would be to examine any time trend effect, something pointed out by Clist and Morrissey (2011) but ignored by Benedek et al. (2012). One detail that has been overlooked is that the IMF changed their definition of various types of domestic tax revenue in 1990; this seemingly innocuous change may explain the time trend and warrants further investigation.
  • The third stage of the research would be to examine the validity of GMM as a solution to the problem of endogeneity. Alternative approaches will be investigated, with my previous work in the field of aid allocation (Clist, 2011) providing suitable instruments for aid. 

Outputs

  • All data and code will be made available via both the ICTD and Paul Clist’s website. This will include the code to replicate Benedek et al. (2012) as well as my own results. 
  • A working paper will be produced and published by the ICTD. The paper will detail all of the substantive findings of the research. The companion data code and source will enable researchers to understand exactly how results are arrived at and catalogue econometric decisions. 
  • A research article will be prepared for submission