Thursday, 16 October 2014

Aid and tax in Ethiopia: is there a crowding out effect?

Ethiopia is (still) one of the major aid recipient countries in the world.

This year the World Bank has reached a record in terms of both the number of projects and the amount of loans to Ethiopia, totalling 1.6 billion USD in 2014. In 2011/2012 the UK’s Department for International Development (DFID) disbursed more bilateral aid in Ethiopia than it has ever spent on any other country in a year.

Many argue that all this is good news for Ethiopia.

With a population of over 90 million, the country remains one of the poorest in the world and it still faces huge challenges in social development and economic transformation.

“Aid enthusiasts” would argue that it is at least partly thanks to aid monies that much progress was achieved in recent years for example in terms of education, access to electricity and the development of new public infrastructure. However “aid critics” would argue that there may be great dangers associated with the disbursement of such high and increasing amounts of aid. Some observers suggested that aid can have detrimental effects on domestic institutions and others argued that developing countries would be better off without aid altogether.

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Giulia Mascagni is a Research Fellow at the Institute of Development Studies.To learn more about the issues discussed in this blog, why not apply for a place on the IDS short course on Tax and Development

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