Chinese Aid Projects and Local Tax Attitudes: Evidence from Africa

Abstract

The provision of Chinese aid to Africa is characterized by a policy of minimal conditions, whereby aid is extended to African leaders in response to their requests. This approach may afford African leaders greater discretion in expediting the implementation of Chinese aid projects. However, it also renders Chinese aid vulnerable to corruption, as leaders may exploit it to secure political favor for a specific region without the need to adjust government tax and spending policies. Such a characteristic of Chinese aid projects may ultimately shape local attitudes towards taxation and, thereby, influence state–society relations. This paper puts this claim to an empirical test using data from the Afrobarometer surveys and the AidData. The results indicate that exposure to Chinese aid projects creates negative perceptions among citizens regarding the state’s tax enforcement behavior. Interestingly, the study also reveals a positive association between Chinese aid and tax morale or compliance among citizens residing around Chinese aid projects. Noteworthily, these results are confined only to less democratic settings. A similar analysis for World Bank aid projects does not exhibit such a relationship. The findings suggest a tradeoff associated with Chinese aid. On the one hand, it promotes compliance among beneficiaries. On the other hand, it engenders weak tax enforcement perceptions. The implication is that if the negative consequences outweigh the positive ones, Chinese aid has the potential to undermine the government’s reputation for fiscal responsibility, which in turn poses challenges to the development of state capacity through robust fiscal contracts.

AidData’s Geospatial Global Chinese Development Finance Dataset

“…In pursuit of inferential leverage, a growing number of studies exploit spatio-temporal variation in treatment exposure to estimate the causal effects of Chinese grant- and loan-financed projects on social, economic, governance, and environmental outcomes at subnational scales. With earlier versions of the GCDF dataset that include substantially fewer projects with precise geocodes and commencement and completion dates, these studies seek to measure the localized effects of China’s overseas development projects on employment 24 , firm sales growth 25 , agricultural productivity 26 , 27 , household welfare 4 , economic growth and development 2 , 5 , 6 , 8 , nutrition 28 , infant mortality, 29 , environmental degradation 18 , 30 , political capture 15 , 31 , corruption 13 , 32 , acceptance of authoritarian norms 33 , acceptance of gender equality norms 34 , ethnic identification 35 , labor union participation 14 , satisfaction with public services 10 , popular support for China 10 , 36 – 39 , popular support for host governments 10 , 40 , tax morale and compliance 41 , 42 , media sentiment 43 , civic engagement 44 , public protest 17 , social stability 33 , and violent conflict 33 .…”