Paul Clist

Foreign Aid and Domestic Taxation: Multiple Sources, One Conclusion

There are influential studies that argue that foreign aid displaces domestic tax revenue when it is given in the form of grants. These claims are based on data that are deeply problematic: several different sources are amalgamated into one dataset, with no apparent checks on compatibility. In this article, a variety of econometric strategies are used to overcome these issues of data quality. The resulting weight of evidence points to a modest but positive effect on the part of foreign aid generally on domestic tax revenue. Fears over a negative effect for aid grants appear unwarranted, and are accounted for by the inappropriate use of data or endogeneity issues.

Measures for Measures: Evaluating Judgments of Donor Allocative Performance

This paper reviews the various measures which have been used in the recent literature to assess how well donors allocate their aid across countries. We begin by proposing three desirable criteria for a measure of allocative performance, which make limited assumptions. We then show that all existing measures of allocative performance fail to meet these criteria. We go on to propose a new measure that does meet our criteria, and present rankings of the allocative performance of the 23 OECD-DAC bilateral donors on the basis of this measure. The ranking differs quite substantially from those based on existing measures.

Do Performance Measures of Donors' Aid Allocation Underperform?

Indices of donor performance abound. Their recent popularity has occurred within the context of pessimism over aids impact and optimism over the effect of changes in donor behaviour. Rankings of donor allocative performance aim to change donor behaviour, either through direct pressure on governments or indirectly through public engagement. The indices themselves rely on descriptive measures, and typically claim methodological superiority over positive alternatives due to their simplicity. However, there are two problems. First, measures do not seem robust to simple variations in methodology. Second, correlation amongst competing indices is low, leading to a host of contradictory judgements. This offers neither clear technical guidance nor consistent political pressure. The advantages and disadvantages of the approach are discussed, building upon the more general critique of aggregate indices. I suggest a graphical solution that embraces the advantages of the descriptive approach (including ease of public communication) while avoiding some of its major weaknesses (which typically stem from aggregation).