External Private Financing and Domestic Revenue Mobilization: A Dilemma?

External Private Financing and Domestic Revenue Mobilization: A Dilemma?
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Volume/Issue: Volume 2020 Issue 230
Publication date: November 2020
ISBN: 9781513560397
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Topics covered in this book

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Finance , Economics- Macroeconomics , Public Finance , Domestic revenue mobilization , Bond markets , external commercial debt , , WP , market access , access country , access unit , market discipline effect , market financing , external commercial debt , access group , Revenue mobilization , International bonds , Emerging and frontier financial markets , Bonds , Sub-Saharan Africa

Summary

Domestic revenue mobilization (DRM) is essential for low-income and emerging economies to sustainably finance their development needs and has received increasing attention in recent years. Studies have centered on structural factors such as the size and the structure of the economy, and the quality of institutions, notably to account for weaknesses in revenue administrations. Nevertheless, DRM can take time and carry political costs. Raising more financing through donors or private investors may be an easier and more politically palatable way for countries to meet spending needs. Using an impact assessment methodology and panel regressions over a sample of 72 developing countries, we found no evidence that access to bond markets or external commercial loans undermines the countries’ efforts to collect tax revenue. On the contrary, we found that access to markets has a positive impact on domestic revenue mobilization. Plausible explanations are that private financing must be repaid, and strong macroeconomic fundamentals are key for maintaining market access. We have also found that macroeconomic stability and the strength of institutions do matter for domestic revenue mobilization.