This paper challenges a long-held development-policy assumption that aid flows to the world’s poorer countries are caused by lack of domestic resources. Using comparative data for five African countries—Burundi, Kenya, Rwanda, Tanzania, and Uganda—the paper examines the relationship between growth in public debt and tax revenue. It exploits the timing of political events in a within-country setting to identify the changes in government spending, public debt, and tax revenue associated with (discrete changes in) political events.

Results:

The results based on the first-differences estimation method show a negative relationship between growth of public debt and the tax-to-GDP ratio. Moreover, the positive association between growth in government spending/debt and political events suggests that domestic politics and resource mobilisation are somehow entangled. Preference for aid is to a large extent influenced by politically driven interests, but also serves as the principal factor shaping policy attitudes toward domestic resources, corruption, and tax evasion.

Predictors of revenue growth:

Conversely, while some empirical support is found for economic and institutional factors as predictors of revenue growth, the economic and institutional predictors are weaker overall than the political interest predictors.