Tax Revenue Effort and Aid in Fragile States : The Case of the Comoros
This paper assesses the impact of aid on tax revenue effort in the context of a fragile state, using the case of the Comoros. The paper estimates a fiscal response model within a cointegrated vector autoregressive framework with annual data for the...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/604001613577832331/Tax-Revenue-Effort-and-Aid-in-Fragile-States-The-Case-of-the-Comoros http://hdl.handle.net/10986/35146 |
| Summary: | This paper assesses the impact of aid on
tax revenue effort in the context of a fragile state, using
the case of the Comoros. The paper estimates a fiscal
response model within a cointegrated vector autoregressive
framework with annual data for the Comoros’
post-independence period (1984-2017). The data suggest that
grants and tax revenue in the Comoros had a significant
negative relationship in the long run that remained stable
throughout the post-independence period. Grants are a
politically less costly source of finance, reducing the
urgency of fragile states’ fiscal planners to expend their
reduced political capital and administrative capacity on tax
collection reforms. This effect may be amplified by the
large one-off budget support grants, which represent a
windfall of resources to the Comoros from bilateral
partners, which often may have stopped tax reform
initiatives. Although the paper does not suggest a decrease
in aid to fragile states, as aid constitutes an essential
support for these countries, being aware of this
historically negative relationship is an important step to
ensure that the government’s tax revenue efforts do not slow
down following, for instance, large one-off unconditional
budgetary support. In addition, the paper argues that
prioritizing conditional aid, focusing on aid effectiveness,
and engaging more resources for capacity-building tax
revenue projects and technical assistance could increase the
impact of donors’ interventions. |
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