The Effect of Central Grants on Local Tax and Non-tax Revenue Mobilisation in a Conflict Setting: Evidence from Côte d’Ivoire

In this paper the effect of grants from central government on local revenue mobilization in Côte d’Ivoire is analyzed within a period from 2001 - 2011. Two components of local own revenue is considered in Côte d’Ivoire, i.e tax revenue (LTR) and non-tax revenue (LNTR). To perform the investigation, the analysis is based on a carefully-constructed novel dataset, and very recent and appropriate econometric estimators (Grouped Fixed Effects (GFE) ). The GFE method assumes that unobserved heterogeneity can be constant and/or varying over time among individual departments. Overall, the results show a statistically significant and positive effect of central grants on local mobilization of tax and non-tax revenue. Thus, the study finds that central grants to municipalities do not displace local revenue, but instead lead to higher revenue. However, the effect on tax revenue is more important than that on non-tax revenue. A 10 % increase in total grants to local government is associated with a 4.1 % increase in tax revenue mobilized by local administration, while increasing non-tax revenue by only 1.8 %. We also find that, although conflict has a negative impact on mobilization of local revenue, this impact remains generally limited.