Domestic revenue instead of development cooperation? Low- and middle-income countries facing the challenge of generating additional revenue
von Haldenwang, ChristianPolicy Brief (22/2026)
Bonn: German Institute of Development and Sustainability (IDOS)
DOI: https://doi.org/10.23661/ipb22.2026
Dt. Ausg. u.d.T.:
Eigeneinnahmen statt Entwicklungszusammenarbeit? Niedrig- und Mitteleinkommensländer vor der Herausforderung, zusätzliche Einnahmen zu generieren
(IDOS Policy Brief 19/2026)
Exacerbated by the cuts in development cooperation (DC), many low- and middle-income countries (LMICs) are currently facing severe financial constraints. Against this backdrop, higher domestic revenue is a desirable goal for most countries. Greater attention is being devoted to enhancing domestic revenue in the international development policy discourse too – across the entire political spectrum. For some, the goal is to extend the decision-making scope of government and enhance the development focus of public action, while others hope to relieve the burden of transfers on industrialised nations of the Global North and end the recipient countries’ “addiction” to DC payments. Yet what options are actually available to LMICs to generate more domestic revenue? The present policy brief shows that taxing personal income and landed property in particular could offer opportunities for additional revenue. Another important area is the rationalisation of tax expenditures, which often lead to substantially less revenue without providing any evident benefit. At the same time, however, it is also important to recognise the systemic – and eminently political – nature of tax reforms. Above and beyond the issue of technical and administrative feasibility, the political achievability of reforms must also be taken into
account. Short-term tax increases – for example through higher consumer taxes or tariffs – are often not very sustainable in their own right.
Instead, the aim must be to place the “fiscal contract” between taxpayers and the state on a broader and more stable base where better public services also play a role. One type of revenue (in this case DC) therefore cannot simply be replaced by another (taxes) – a fact that advocates of DC cuts often fail to mention. During the transition, DC must continue to provide contributions, despite declining overall funds.
International players, including the German Government and the EU, can support partner governments in a variety of ways. They are already doing so, for example by promoting the Addis Tax Initiative (ATI). In addition, Germany and the EU should make a determined effort to help strengthen multilateral approaches to cooperation. This particularly applies to the United Nations (UN) Framework Convention on International Tax Coopera-tion currently being negotiated.
