Bad signals? Foreign aid and tax morale across Sub-Saharan Africa

Abstract

Does exposure to foreign aid projects affect citizens’ attitudes towards the state? We examine this question by combining geo-coded data on World Bank aid projects and survey data for 30 Sub-Saharan African countries. We compare individuals across administrative units that vary in the presence and type of aid projects and complement this approach with an unexpected event design that accounts for potential selection concerns. In both analyses, we find that projects focusing on public goods that do not involve the state reduce citizens’ tax morale. However, in locations where the state is not expected to be a public goods’ provider, externally provided public goods do not curb citizens’ tax morale. We interpret these results as evidence of foreign aid sending a public signal of the state’s inability to deliver basic services. Our results can inform multilateral donors on the types and targets of interventions that can backfire on the state.