Growth, Income Inequality and Aid Giving: Looking for an Aid-Kuznets Curve
AbstractThis paper contributes to the literature on foreign aid by exclusively explaining a donorâ€™s motivation for foreign external assistance. The underlying framework focuses on recipientsâ€™ needs for foreign aid to address income inequality as and when growth occurs. A tax-subsidy policy is hypothesised in the manner advocated by optimal tax theory to effectively deal with inequity by minimizing the distortionary effects of income taxes. This framework is ultimately endogeneized in the recipientâ€™s budget constraint, from which the donor derives the demand for foreign assistance. The outcome supports an inverted-U relationship between foreign aid and per capita income in the way postulated by the conventional Kuznets curve. Our postulate is empirically tested using a panel of 29 developing countries across a time span of 27 years; and from which the hypothesis of an â€˜Aid-Kuznetsâ€™ curve could not be rejected.
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Bibliographic InfoArticle provided by Review of Applied Economics in its journal Review of Applied Economics.
Volume (Year): 3 (2007)
Issue (Month): 1-2 ()
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foreign aid; optimal taxation; fiscal policy; International Relations/Trade; F35; H21; E62;
Find related papers by JEL classification:
- F35 - International Economics - - International Finance - - - Foreign Aid
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Llavador, Humberto G. & Roemer, John E., 2001.
"An equal-opportunity approach to the allocation of international aid,"
Journal of Development Economics,
Elsevier, vol. 64(1), pages 147-171, February.
- John Roemer & Humberto G. Llavador, 2003. "An Equal-Opportunity Approach to the Allocation of International Air," Working Papers 9910, University of California, Davis, Department of Economics.
- Trumbull, William N & Wall, Howard J, 1994. "Estimating Aid-Allocation Criteria with Panel Data," Economic Journal, Royal Economic Society, vol. 104(425), pages 876-82, July.
- Maizels, Alfred & Nissanke, Machiko K., 1984. "Motivations for aid to developing countries," World Development, Elsevier, vol. 12(9), pages 879-900, September.
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