Heterogeneous Aid Effects on Tax Revenues: Accounting for Government Stability in WAEMU Countries
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Abstract / Résumé : Using a panel threshold model, we examine the heterogeneous effects of foreign aid on tax revenue due to government stability in the West African Economic and Monetary Union countries over the period 1986–2010. Panel Smooth Threshold Regressions indicate the existence of strong threshold effects in the aid–tax relationship depending on the level of government stability. They also indicate that the effect of aid on tax revenue is gradual and varies across countries according to the level of government stability. We find that aid directly reduces tax revenues but for higher levels of government stability it enhances tax performance. We provide estimates of country time-varying coefficients of aid effect. We find on average a positive impact of aid. However, the size of this impact is very small, suggesting that there is still much to do at the institutional level to improve the effectiveness of aid for tax performance in WAEMU countries.
Code JEL : F35 - Foreign Aid , E02 - Institutions and the Macroeconomy , H20 - General , C23 - Panel Data Models - Spatio-temporal Models , C24 - Truncated and Censored Models - Switching Regression Models - Threshold Regression Models , O55 - AfricaEtudes et documents :