Foreign Aid, Financial Development and Tax Revenue Nexus in Emerging Markets
Keywords:
Foreign Aid; Transitional Economies; Panel Data; Tax RevenueAbstract
This study explored the influence of foreign aid on tax revenue in emerging markets using panel data (2001-2019) methods such as fully modified ordinary least squares (FMOLS), pooled ordinary least squares (OLS) and fixed effects. Secondly, to investigate tax revenue’s influence of the complementarity between foreign aid and financial development in emerging markets using the same data set. Foreign aid and tax revenue were found to have an inverse relationship. Financial development’s influence on tax revenue was found to be significantly positive in majority of instances. The complementarity variable’s impact on tax revenue was also positive and significant. Emerging markets are therefore urged to implement policies that strengthens financial sector development to increase tax revenue and as a way of improving foreign aid’s favourable impact on tax revenue in emerging markets.
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