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Recent developments in fiscal response with an application to Costa Rica

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  • Susana Franco-Rodriguez

    (International Development Centre, University of Reading, UK)

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    Abstract

    This paper uses the framework of Fiscal Response Models to analyse the impact of foreign assistance on recipient government's behaviour. Such models provide a means of examining the impact of aid on taxation and expenditure decisions. In the theoretical model presented here foreign aid has been endogenized to account for the fact that governments have some influence over the amount of aid committed to the country, and considerable influence over disbursements. Thus, fiscal planning will be based on targets for expenditures and revenues, the latter including aid. This permits a more complete examination of the effects of aid on government fiscal behaviour than do standard fungibility models. The model is illustrated in an application to Costa Rica, where the effect of aid on government allocation of resources appears to have been negligible. Copyright © 2000 John Wiley & Sons, Ltd.

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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

    Volume (Year): 12 (2000)
    Issue (Month): 3 ()
    Pages: 429-441

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    Handle: RePEc:wly:jintdv:v:12:y:2000:i:3:p:429-441

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    1. Feyzioglu, Tarhan & Swaroop, Vinaya & Zhu, Min, 1998. "A Panel Data Analysis of the Fungibility of Foreign Aid," World Bank Economic Review, World Bank Group, vol. 12(1), pages 29-58, January.
    2. 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.
    3. Mark McGillivray & Oliver Morrissey, 2000. "Aid fungibility in Assessing Aid: red herring or true concern?," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 413-428.
    4. Susana Franco-Rodriguez, & Mark McGillivray, & Oliver Morrissey, . "Aid and the Public Sector in Pakistan: Evidence with Endogenous Aid," Discussion Papers 98/2, University of Nottingham, CREDIT.
    5. 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.
    6. Franco-Rodriguez, Susana & Morrissey, Oliver & McGillivray, Mark, 1998. "Aid and the Public Sector in Pakistan: Evidence with Endogenous Aid," World Development, Elsevier, vol. 26(7), pages 1241-1250, July.
    7. 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.
    8. 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.
    9. 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.
    10. White, H. & McGillivray, M., 1992. "Aid and government : a dynamic model of aid, income and fiscal behaviour," ISS Working Papers - General Series 18828, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    11. White, Howard, 1994. "Foreign aid, taxes and public investment: A further comment," Journal of Development Economics, Elsevier, vol. 45(1), pages 155-163, October.
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    Cited by:
    1. Neva Novarro, 2004. "Do Policy-Makers Earmark to Constrain their Successors? The Case of Environmental Earmarking," Working Papers 0408, College of the Holy Cross, Department of Economics.
    2. Musharraf Cyan & Jorge Martinez-Vazquez & VIoleta Vulovic, 2013. "Measuring tax effort: Does the estimation approach matter and should effort be linked to expenditure goals?," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1308, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    3. Bhattarai, Badri Prasad, 2007. "Foreign Aid and Government's Fiscal Behaviour in Nepal: An Empirical Analysis," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 37(1), pages 41-60, March.
    4. Mavrotas, George & Ouattara, Bazoumana, 2003. "Aid Disaggregation, Endogenous Aid and the Public Sector in Aid-Recipient Economies: Evidence from C.te d'Ivoire," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
    5. George Mavrotas, 2005. "Aid heterogeneity: looking at aid effectiveness from a different angle," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(8), pages 1019-1036.
    6. World Bank, 2007. "Niger - Accelerating Growth and Achieving the Millennium Development Goals : Diagnosis and the Policy Agenda," World Bank Other Operational Studies 7658, The World Bank.
    7. Ramesh Durbarry, 2004. "Foreign aid: is it all consumed?," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(2), pages 189-199.
    8. Roberto Machado, 2010. "Aid and fiscal policy in Nicaragua: A fiscal response analysis," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(4), pages 483-502.
    9. Mavrotas, George, 2003. "Which Types of Aid Have the Most Impact?," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
    10. Yongzheng Yang & Robert Powell & Sanjeev Gupta, 2005. "The Macroeconomic Challenges of Scaling Up Aid to Africa," IMF Working Papers 05/179, International Monetary Fund.
    11. Simon Feeny & Mark McGillivray, 2003. "Aid and public sector borrowing in developing countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(8), pages 989-998.

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