Cutting off foreign aid can actually make citizens demand higher taxes and more government control at home.
March 19, 2026
Original Paper
Aid Cuts Increase Demand for Government Services and Taxation: Evidence from Halting USAID Funding 
SSRN · 6348298
The Takeaway
While we usually assume that aid-dependent citizens will lose faith in their state when services fail, this study in Malawi found that the sudden withdrawal of USAID led to a surge in citizens demanding the government tax them to replace the lost services. This suggests that 'aid shocks' can paradoxically force the creation of a social contract and state-building where foreign money previously suppressed it.
From the abstract
Fiscal theories of state development emphasize a complementarity between government revenue, taxation, and citizen demands for public services. We assess the relevance of this logic for understanding the political and redistributive consequences of massive cuts to foreign aid budgets following the shuttering of USAID in 2025. We conduct over 4,500 in-person surveys, survey experiments, and interviews with citizens and public health officials before and after the termination of USAID operations i