Aid, debt and fiscal policies in Senegal
This paper uses the fiscal response framework to study the effects of aid flows on key fiscal aggregates in Senegal, over the period of 1970-2000. Attention is given to the interplay between aid and debt. The paper contributes to the empirics of fiscal response modelling by deriving the standard errors and p values associated with the different mechanisms of the structural and reduced form equations. The main findings in this paper are: (i) relatively large shares of government resources are used to finance debt servicing; (ii) the impact of aid flows on domestic expenditure is statistically insignificant and (iii) debt servicing has a significant negative effect on domestic expenditure. The main policy implication of this study is that debt reduction could be a more effective policy tool than additional aid (loans) in financing pro-poverty expenditure as well as public investment. Copyright © 2006 John Wiley & Sons, Ltd.
Volume (Year): 18 (2006)
Issue (Month): 8 ()
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