Fiscal Policies in developing countries

Gaining a better understanding of the economic and social impact of tax policies on developing counties is the aim the research conducted by Lucie Gadenne, PhD candidate at the Paris School of Economics. The young researcher is studying the link between mode of public finance and quality of public spending. Using her own model, she has demonstrated that the more governments raise revenue through local taxes, the greater the quality of their spending on public goods (education, healthcare, etc.). On the other hand, the more the revenue is collected through transfers from the central government, the greater the chance of such funds being diverted. To confirm these results, Lucie Gadenne focused her study on Brazil, country known for government corruption, but that has been investing in a program to modernize the local tax administrations for a number of years. The conclusion of her study is clear: the program raised local tax revenue by 11% after four years. And just as shown by her model, the revenue thus generated was used to invest in public goods and was not diverted by politicians. Conversely, where federal transfers increased, so did corruption, with no benefit for local citizens. In view of the fact that most international funding is distributed through central governments, her research sheds interesting light on the performance of official development assistance.