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Recent developments in fiscal response with an application to Costa Rica

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  • Susana Franco‐Rodriguez

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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  • Susana Franco‐Rodriguez, 2000. "Recent developments in fiscal response with an application to Costa Rica," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 429-441, April.
  • Handle: RePEc:wly:jintdv:v:12:y:2000:i:3:p:429-441
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    File URL: https://doi.org/10.1002/(SICI)1099-1328(200004)12%3A3%3C429%3A%3AAID-JID660%3E3.0.CO%3B2-W
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    References listed on IDEAS

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    1. Howard White, 1993. "Aid and government: A dynamic model of aid, income and fiscal behaviour," Journal of International Development, John Wiley & Sons, Ltd., pages 305-312.
    2. 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 616-641, September.
    3. Howard White, 1993. "Aid and government: A dynamic model of aid, income and fiscal behaviour," Journal of International Development, John Wiley & Sons, Ltd., pages 305-312.
    4. 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 258-265, May.
    5. 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.
    6. White, Howard, 1994. "Foreign aid, taxes and public investment: A further comment," Journal of Development Economics, Elsevier, pages 155-163.
    7. 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.
    8. 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, April.
    9. Gang, Ira N. & Ali Khan, Haider, 1990. "Foreign aid, taxes, and public investment," Journal of Development Economics, Elsevier, pages 355-369.
    10. Binh, Tran-Nam & McGillivray, Mark, 1993. "Foreign aid, taxes and public investment A comment," Journal of Development Economics, Elsevier, pages 173-176.
    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.
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    Cited by:

    1. Roberto Machado, 2010. "Aid and fiscal policy in Nicaragua: A fiscal response analysis," Journal of International Development, John Wiley & Sons, Ltd., pages 483-502.
    2. Leanora Alecia Brown & Jorge Martinez-Vazquez, 2015. "International Debt Forgiveness: Who Gets Picked and Its Effect On The Tax Effort Of Developing Countries," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1504, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    3. Yongzheng Yang & Robert Powell & Sanjeev Gupta, 2005. "The Macroeconomic Challenges of Scaling Up Aid to Africa," IMF Working Papers 05/179, International Monetary Fund.
    4. George Mavrotas & Bazoumana Ouattara, 2010. "The Composition of Aid and the Fiscal Sector in an Aid-Recipient Economy: A Model," Working Papers id:3213, eSocialSciences.
    5. Mavrotas, George & Ouattara, Bazoumana, 2003. "The Composition of Aid and the Fiscal Sector in an Aid-Recipient Economy: A Model," WIDER Working Paper Series 011, World Institute for Development Economic Research (UNU-WIDER).
    6. 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.
    7. Giulia Mascagni, 2014. "Aid and Taxation: Evidence from Ethiopia," Working Paper Series 7314, Department of Economics, University of Sussex.
    8. Djedje Hermann Yohou & Michaël Goujon & Bertrand Laporte & Samuel Guerineau, 2016. "Is Aid Unfriendly to Tax? African Evidence of Heterogeneous Direct and Indirect Effects," Working Papers halshs-01321620, HAL.
    9. 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.
    10. 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.
    11. Mavrotas, George, 2003. "Which Types of Aid Have the Most Impact?," WIDER Working Paper Series 085, World Institute for Development Economic Research (UNU-WIDER).
    12. Simon Feeny & Mark McGillivray, 2003. "Aid and public sector borrowing in developing countries," Journal of International Development, John Wiley & Sons, Ltd., pages 989-998.
    13. George Mavrotas, 2005. "Aid heterogeneity: looking at aid effectiveness from a different angle," Journal of International Development, John Wiley & Sons, Ltd., pages 1019-1036.
    14. Mavrotas, George & Ouattara, Bazoumana, 2003. "Aid Disaggregation, Endogenous Aid and the Public Sector in Aid-Recipient Economies: Evidence from C.te d'Ivoire," WIDER Working Paper Series 015, World Institute for Development Economic Research (UNU-WIDER).
    15. Ramesh Durbarry, 2004. "Foreign aid: is it all consumed?," Journal of International Development, John Wiley & Sons, Ltd., pages 189-199.

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