Foreign Aid, Tax Revenue and Economic Growth in Africa

There has been need to map available domestic revenue and alternative sources of finance to growth of developing countries. However, the actual relationship among foreign aid, tax revenue and economic growth is not clearly understood and there is need to expand the empirical boundaries towards the area in developing economies and particularly in Africa. This provides the nature of causal relationship among foreign aid, tax revenue and economic growth in Africa. It also provides the mechanism through which foreign aid and/or tax revenue spurs growth of African countries. It sheds light on the sustainability of tax revenue efforts through the inflows of foreign aid to the African countries and the transmission effects of foreign and tax revenue to economic growth through government spending. The study is of importance to both policy makers and governments of entire African states in terms of understanding the implications of relying on foreign aid which has capabilities of substituting the tax revenue generating efforts and the channels through which the foreign aid and tax revenue could transmit to advanced growth.