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Aid and Fiscal Behaviour in Indonesia: The case of a lazy government

Author

Listed:
  • Iman Sugema

    (Institut Pertanian Bogor, Indonesia)

  • Anis Chowdhury

    () (University of Western Sydney, Australia)

Abstract

This paper aims to assess the effects of aid on fiscal behavior in Indonesia. There are four main findings. First, aid inflow is primarily driven by the need to fill the fiscal gap. That is, aid is demand driven. Second, although project aid is by definition intended for development expenditures, it results in an increase in routine expenditure as well. This suggests that project aid is fungible: it creates extra resources available to increase nondiscretionary spending. Third, program aid tends to increase routine expenditure but not development expenditure; thus it mainly serves as budget support. Fourth, aid flows make the government fiscally ?lazy?. The availability of aid is a disincentive to mobilise domestic revenue through a more efficient and effective taxation system.

Suggested Citation

  • Iman Sugema & Anis Chowdhury, 2005. "Aid and Fiscal Behaviour in Indonesia: The case of a lazy government," Centre for International Economic Studies Working Papers 2005-06, University of Adelaide, Centre for International Economic Studies.
  • Handle: RePEc:adl:cieswp:2005-06
    as

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    File URL: http://www.adelaide.edu.au/cies/papers/0506.pdf
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    References listed on IDEAS

    as
    1. 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.
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    Cited by:

    1. Aaron Batten, 2010. "Foreign aid, government behaviour, and fiscal policy in Papua New Guinea," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 24(2), pages 142-160, November.
    2. Daniel Cohen & Pierre Jacquet & Helmut Reisen, 2007. "Loans or Grants?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 143(4), pages 764-782, December.
    3. Aaron Batten, 2009. "Foreign Aid, Government Behaviour and Fiscal Policy Outcomes in Papua New Guinea," International and Development Economics Working Papers idec09-03, International and Development Economics.
    4. repec:wsi:serxxx:v:62:y:2017:i:02:n:s0217590816500041 is not listed on IDEAS

    More about this item

    Keywords

    Foreign aid; economic growth; balance of payments; government fiscal behaviour.;

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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