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Has aid made the Government of Indonesia lazy?

Author

Listed:
  • Iman Sugema

    (Faculty of Economics and Management, Institut Pertanian Bogor, Indonesia)

  • Anis Chowdhury

    (University of Western Sydney, Australia)

Abstract

This paper is aimed at assessing the effects of aid on fiscal behaviour in Indonesia. There are four main findings. First, the inflow of aid is driven primarily by the need to fill the fiscal gap; that is, aid is demand driven. Second, although project aid is by definition intended for development expenditures, it results in an increase in routine expenditure as well. This suggests that project aid is fungible: it creates extra resources available to increase non-discretionary spending. Third, programme aid tends to increase routine expenditure but not development expenditure; thus, it mainly serves as budgetary support. Fourth, aid flows make the Government of Indonesia fiscally “lazy”. The availability of aid is a disincentive to mobilize domestic revenue through a more efficient and effective taxation system.

Suggested Citation

  • Iman Sugema & Anis Chowdhury, 2007. "Has aid made the Government of Indonesia lazy?," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 14(1), pages 105-124, June.
    • Handle: RePEc:unt:jnapdj:v:14:y:2007:i:1:p:105-124
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Foreign aid; economic growthm balance of payments; government fiscal behaviour;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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