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Taxing fragmented aid to improve aid efficiency

Emmanuelle Auriol () and Josepa Miquel-Florensa ()

The Review of International Organizations, 2019, vol. 14, issue 3, No 4, 453-477

Abstract: Abstract We present a model with multiple donors-principals that provide funds to a unique recipient-agent. Each donor decides how to allocate his aid funds between a pooled and an unilateral project. Both the principals and the agent value the output produced with the pooled funds and the unilateral projects. However donors have a bias in favor of their own unilateral project, which leads them to over-invest in these projects. We propose a tax scheme on the unilateral projects, which acts as a protection measure against biased allocation by the principals. The optimal tax imposed on unilateral projects varies depending on the total amount of aid provided by the donor and on the productivity of his unilateral project. Such a mechanism fits into the current discussion on bilateral negotiations on aid funds tax exemptions.

Keywords: Aid fragmentation; Taxation; Multi-principals; Development (search for similar items in EconPapers)
JEL-codes: D82 D86 F35 O19 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Taxing Fragmented Aid to Improve Aid Efficiency (2015) Downloads
Working Paper: Taxing Fragmented Aid to Improve Aid efficiency (2015) Downloads
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DOI: 10.1007/s11558-018-9329-0

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