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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Ira N. Gang & Haider Ali Khan, 1999. "Foreign aid and fiscal behavior in a bounded rationality model: Different policy regimes," Empirical Economics, Springer, vol. 24(1), pages 121-134.
    • 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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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Europe needs another Marshall Plan to save crisis-ravaged euro
      by Haider Khan, John Evans Distinguished University Professor at University of Denver in The Conversation on 2015-04-28 15:00:14

    Citations

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    Cited by:

    1. Ouattara, B., 2006. "Foreign aid and government fiscal behaviour in developing countries: Panel data evidence," Economic Modelling, Elsevier, vol. 23(3), pages 506-514, May.
    2. José Antonio Alonso & Carlos Garcimartín, 2011. "Does Aid Hinder Tax Efforts? More Evidence," Discussion Papers 11/04, University of Nottingham, CREDIT.
    3. Haider A. Khan, 2004. "General Conclusions: From Crisis to a Global Political Economy of Freedom," Palgrave Macmillan Books, in: Global Markets and Financial Crises in Asia, chapter 9, pages 193-211, Palgrave Macmillan.
    4. Feeny, Simon, 2007. "Foreign Aid and Fiscal Governance in Melanesia," World Development, Elsevier, vol. 35(3), pages 439-453, March.
    5. Feeny, Simon & McGillivray, Mark, 2010. "Aid and public sector fiscal behaviour in failing states," Economic Modelling, Elsevier, vol. 27(5), pages 1006-1016, September.
    6. B Ouattara, 2004. "Does Aid Promote Fiscal Indiscipline? Evidence from Dynamic Panel Model," Economics Discussion Paper Series 0407, Economics, The University of Manchester.
    7. Mark McGillivray & Oliver Morrissey, 2001. "Fiscal Effects of Aid," WIDER Working Paper Series DP2001-61, World Institute for Development Economic Research (UNU-WIDER).
    8. George Mavrotas & Bazoumana Ouattara, 2007. "Aid Modalities and Budgetary Response: Panel Data Evidence," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 143(4), pages 720-741, December.
    9. Jose L. Diaz‐Sanchez & Abrams M. E. Tagem & Joana Mota, 2022. "Tax revenue effort and aid in fragile states: The case of Comoros," South African Journal of Economics, Economic Society of South Africa, vol. 90(2), pages 175-195, June.
    10. repec:bla:rdevec:v:13:y:2009:i:s1:p:526-542 is not listed on IDEAS
    11. Bazoumana Ouattara, 2006. "Aid, debt and fiscal policies in Senegal," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(8), pages 1105-1122.
    12. Simon Feeny, 2006. "Policy preferences in fiscal response studies," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(8), pages 1167-1175.
    13. Epstein, Gil S. & Gang, Ira N., 2009. "Good governance and good aid allocation," Journal of Development Economics, Elsevier, vol. 89(1), pages 12-18, May.
    14. Khan, Haider, 2013. "Globalization and Democracy: A Short Introduction," MPRA Paper 49515, University Library of Munich, Germany.
    15. Sadegh Bakhtiari & Hojjat Izadkhasti & Seyed Komail Tayebi, 2013. "Crowding out Effect of Foreign Aid in Selected Developing Countries: Panel Data Evidence," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 18(2), pages 51-64, spring.
    16. Gil S. Epstein & Ira N Gang, 2006. "The Hope for Hysteresis in Foreign Aid," Departmental Working Papers 200628, Rutgers University, Department of Economics.

    More about this item

    Keywords

    ;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • F35 - International Economics - - International Finance - - - Foreign Aid

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