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Foreign aid and fiscal behavior in a bounded rationality model: Different policy regimes

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Author Info
Ira N. Gang () (Economics Department, Rutgers University, 75 Hamilton St, New Brunswick, NJ 08901-1248, USA)
Haider Ali Khan () (Graduate School of International Studies, University of Denver, Ben Cherrington, Denver, CO 80210, USA)

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Abstract

We examine how the source of foreign aid affects the composition of the recipient government's spending. Does the source of aid - bilateral or multilateral - influence recipient policy-makers' choice between development and nondevelopment expenditure? We depart from previous literature by introducing strong asymmetries in policy-makers' preferences. With the financial constraints set by foreign aid and domestic revenues, this formalization allows us to model and estimate the fiscal behavior of government policy-makers in the presence of foreign aid.

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Publisher Info
Article provided by Springer in its journal Empirical Economics.

Volume (Year): 24 (1999)
Issue (Month): 1 ()
Pages: 121-134
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Handle: RePEc:spr:empeco:v:24:y:1999:i:1:p:121-134

Note: received: September 1996 / final version received: April 1998
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Related research
Keywords: Foreign aid · India;

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Find related papers by JEL classification:
H2 - Public Economics - - Taxation, Subsidies, and Revenue
O1 - Economic Development, Technological Change, and Growth - - Economic Development
F35 - International Economics - - International Finance - - - Foreign Aid

References listed on IDEAS
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.:

  1. Mosley, Paul & Hudson, John & Horrell, Sara, 1987. "Aid, the Public Sector and the Market in Less Developed Countries," Economic Journal, Royal Economic Society, vol. 97(387), pages 616-41, September. [Downloadable!] (restricted)
  2. Sargent, Thomas J, 1976. "A Classical Macroeconometric Model for the United States," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 207-37, April. [Downloadable!] (restricted)
  3. Pack, Howard & Pack, Janet Rothenberg, 1990. "Is Foreign Aid Fungible? The Case of Indonesia," Economic Journal, Royal Economic Society, vol. 100(399), pages 188-94, March. [Downloadable!] (restricted)
  4. Frey, Bruno S. & Schneider, Friedrich, 1986. "Competing models of international lending activity," Journal of Development Economics, Elsevier, vol. 20(2), pages 225-245, March. [Downloadable!] (restricted)
  5. Maizels, Alfred & Nissanke, Machiko K., 1984. "Motivations for aid to developing countries," World Development, Elsevier, vol. 12(9), pages 879-900, September. [Downloadable!] (restricted)
  6. Sengupta, J K, 1970. "Optimal Stabilization Policy with a Quadratic Criterion Function," Review of Economic Studies, Blackwell Publishing, vol. 37(1), pages 127-45, January. [Downloadable!] (restricted)
  7. Heller, Peter S, 1975. "A Model of Public Fiscal Behavior in Developing Countries: Aid, Investment, and Taxation," American Economic Review, American Economic Association, vol. 65(3), pages 429-45, June. [Downloadable!] (restricted)
  8. Gang, Ira N. & Ali Khan, Haider, 1990. "Foreign aid, taxes, and public investment," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 355-369, November. [Downloadable!] (restricted)
  9. Pack, Howard & Pack, Janet Rothenberg, 1993. "Foreign Aid and the Question of Fungibility," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 258-65, May. [Downloadable!] (restricted)
  10. Binh, Tran-Nam & McGillivray, Mark, 1993. "Foreign aid, taxes and public investment A comment," Journal of Development Economics, Elsevier, vol. 41(1), pages 173-176, June. [Downloadable!] (restricted)
  11. Khan, Haider Ali & Hoshino, Eiichi, 1992. "Impact of foreign aid on the fiscal behavior of LDC governments," World Development, Elsevier, vol. 20(10), pages 1481-1488, October. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Gil S. Epstein & Ira N Gang, 2006. "The Hope for Hysteresis in Foreign Aid," Departmental Working Papers 200628, Rutgers University, Department of Economics. [Downloadable!]
  2. Epstein, Gil S. & Gang, Ira N., 2008. "Good Governance and Good Aid Allocation," IZA Discussion Papers 3585, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. George Mavrotas & Bazoumana Ouattara, 2007. "Aid Modalities and Budgetary Response: Panel Data Evidence," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 143(4), pages 720-741, December. [Downloadable!] (restricted)
  4. B Ouattara, 2004. "Does Aid Promote Fiscal Indiscipline? Evidence from Dynamic Panel Model," The School of Economics Discussion Paper Series 0407, Economics, The University of Manchester. [Downloadable!]
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