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Aid for taxation and representation? The effect of foreign tax assistance on democracy in the Global South

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Abstract

Can foreign aid foster democracy? This is a foundational question debated in development studies and donor circles. Within this debate, some scholars argue that aid is detrimental to democratic institutions via an aid curse. The foil to this aid curse, namely that taxation fosters representation, inspires much comparative political economy research. We bring these fields together and approach the aid-democratization and taxation-representation questions through a unique lens: how foreign aid given to assist with tax collection (i.e. tax aid) affects representation. Tax aid is a form of technical assistance associated with increased tax capacity that can be leveraged to assess how such a change impacts democracy. Our statistical estimations indicate that countries receiving tax aid see an improvement in democracy. Survey data analyses show tax aid is associated with increased voting, especially among the middle class, but not changes in government satisfaction. A case illustration of Kenya corroborates our results.

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Data availability

The data that supports the findings of this study are available from the authors, upon reasonable request.

Notes

  1. Online Appendix E contains a comprehensive overview of tax aid.

  2. The Online Appendix is available on our author’s webpage: https://seelkopf.eu/publications.php.

  3. In Burnside and Dollar (2000), good policies or good governance is not identical to democracy, but the concepts are highly correlated and share many features such as respect for the rule of law. See Gisselquist (2012) for a critique about the concept and how it is differently used and understood across the donor community. Gisselquist et al. (2021) provides a systematic review of research on aid and democracy.

  4. While some comparativists find empirical support for this (Ross 2004; Kato and Tanaka 2019), others find no such evidence (Herb 2003, Cuesta, Knack, Milner, and Nielson 2018). Yet, most comparative politics scholars do agree on the theoretical mechanisms behind taxation and representation (but see Boucoyannis (2015) and Cuesta, Knack, Milner, and Nielson (2018) for alternative perspectives).

  5. See Online Appendix E also for a primer on tax aid.

  6. Ultimately it does not matter if the public is aware of the tax aid, they are aware of the monetary loss associated with the tax aid-induced tax reform.

  7. Flores and Nooruddin (2016) argue that greater fiscal space (i.e. greater tax revenues) is associated with greater satisfaction in government.

  8. Martin’s (2016) game experiment uses language of taxing wages, but her theoretical model and country context (i.e. in Uganda where the poor ‘currently pay virtually no direct taxes’ (Martin 2016: pg. 8)) can apply to taxes more generally.

  9. For example, PricewaterhouseCoopers LLP (2010) report across 145 countries that it takes 125 hours to comply with VAT reforms, longer than for the corporate income tax which averaged 74 hours.

  10. The Online Appendix is available on our author’s webpage: https://seelkopf.eu/publications.php.

  11. We chose a three-year moving average because tax aid assistance programs typically last between two and four years (Michielse and Thuronyi 2010).

  12. Immigration policy survey question is scaled from: (1) Let anyone come to (4) Prohibit people from coming.

  13. Such estimation techniques should address concerns raised by Bermeo (2011) who argues that the regime type of donor matters for democratization in the recipient. Bermeo (2011) indicates that her argument is most applicable to bilateral aid or small regional group donors. Tax aid is overwhelming neither (See Graph E.2). Furthermore, selection concerns are less problematic with tax aid because it is primarily multilateral and formulatic (Seelkopf and Bastiaens 2020).

  14. Results are robust to using a binary independent variable of tax aid receipt that is equal to 1 if the country received such aid in the past three years and 0 if not.

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Acknowledgements

We would like to thank the participants of the 2020 International Political Economy Society and 2020 American Political Science Association conferences. A special thank you to Matt Winters, Stephanie Rickard, Felipe Balcazar, Helen Milner, Cleo O’Brien-Udry, Cameron Ballard-Rosa, and Lucia Vitale. All errors are our own.

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  1. Department of Political Science, Fordham University, 441 East Fordham Rd, Bronx, NY, 10458, USA

    Ida Bastiaens

  2. Department of Political Science, Ludwig-Maximilians-University, Oettingenstr. 67, 80538, Munich, Germany

    Laura Seelkopf

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Bastiaens, I., Seelkopf, L. Aid for taxation and representation? The effect of foreign tax assistance on democracy in the Global South. J Int Relat Dev 27, 46–69 (2024). https://doi.org/10.1057/s41268-023-00320-3

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