Fiscal Capacity and Aid Allocation: Domestic Resource Mobilization and Foreign Aid in Low-Income Countries (Research Note)

The international community is increasingly recognizing the importance of domestic resource mobilization (DRM). Donors themselves have committed to explicitly link aid to taxation and the tax effort made by partner countries, confronted with the argument that high levels of aid dependence could undermine good governance by shifting political accountability from domestic to donor constituencies. The results from the analysis show that donors—whether bilateral or multilateral—have paid little attention to fiscal capacity in their aid allocation decisions, despite the rhetoric on the importance of DRM.

This Research Note is published as part of the UNRISD Road to Addis and Beyond Series, bringing together a number of short essays that engage with current Financing for Development debates.