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Aid and Public Sector Fiscal Behaviour in Failing States

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  • Feeny, Simon
  • McGillivray, Mark

Abstract

This paper looks at interactions between foreign aid and the public sector in developing countries, especially those considered to be fragile or failing states. A model is proposed which employs actual budgetary appropriations and revenue estimates (rather than estimated target variables) and allows for asymmetric preference. Variants of the model are estimated using time-series data for Papua New Guinea (PNG). PNG is classified as a fragile state by the international community owing to perceived policy and institutional inadequacies. Results obtained suggest that foreign aid increases consumption and investment expenditures and decreases tax revenues and the level of borrowing.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21801.

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Date of creation: 2009
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Handle: RePEc:pra:mprapa:21801

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Keywords: Foreign aid; taxes; public spending; fungibility; fragile states; failing states; Papua New Guinea;

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Cited by:
  1. Rabia Butt & Attiya Yasmin Javid, 2013. "Foreign Aid and the Fiscal Behaviour of Government of Pakistan," PIDE-Working Papers, Pakistan Institute of Development Economics 2013:96, Pakistan Institute of Development Economics.
  2. Victor Duarte Lledo & Marcos Poplawski-Ribeiro, 2011. "Fiscal Policy Implementation in Sub-Saharan Africa," IMF Working Papers, International Monetary Fund 11/172, International Monetary Fund.
  3. Afridi, Muhammad Asim & Ventelou, Bruno, 2013. "Impact of health aid in developing countries: The public vs. the private channels," Economic Modelling, Elsevier, Elsevier, vol. 31(C), pages 759-765.
  4. Aaron Batten, 2011. "Aid and Oil in Papua New Guinea: Implications for the Financing of Service Delivery," Development Policy Centre Discussion Papers, Development Policy Centre, Crawford School of Public Policy, The Australian National University 1104, Development Policy Centre, Crawford School of Public Policy, The Australian National University.

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