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Aid allocation effects on growth and poverty: A CGE framework

Author

Listed:
  • Twimukye, Evarist P.
  • Nabiddo, Winnie
  • Matovu, John Mary

Abstract

It has been argues that increased aid causes Dutch disease as a result of appreciation of the exchange rate which reduces the competitiveness of the country's exports. In this paper, we argue that if the aid is used productively, there are both short and long term gains. Applying a recursive dynamic general equilibrium model on Uganda, we find that while the currency appreciates and some exports decline, the overall impact on growth outweighs the losses in competitiveness. In addition, it aid is used productively, poverty would be substantially reduced as long as the aid increase is sustained.

Suggested Citation

  • Twimukye, Evarist P. & Nabiddo, Winnie & Matovu, John Mary, 2009. "Aid allocation effects on growth and poverty: A CGE framework," Research Series 54937, Economic Policy Research Centre (EPRC).
  • Handle: RePEc:ags:eprcrs:54937
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    File URL: http://purl.umn.edu/54937
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    References listed on IDEAS

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    1. Watson, Harry, 1985. "Tax evasion and labor markets," Journal of Public Economics, Elsevier, vol. 27(2), pages 231-246, July.
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    3. Thalmann, Philippe, 1992. "Factor taxes and evasion in general equilibrium," Regional Science and Urban Economics, Elsevier, vol. 22(2), pages 259-283, June.
    4. Persson, Mats & Wissen, Pehr, 1984. " Redistributional Aspects of Tax Evasion," Scandinavian Journal of Economics, Wiley Blackwell, vol. 86(2), pages 131-149.
    5. Schneider, Friedrich, 2005. "Shadow economies around the world: what do we really know?," European Journal of Political Economy, Elsevier, pages 598-642.
    6. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
    7. Kesselman, Jonathan R., 1989. "Income tax evasion : An intersectoral analysis," Journal of Public Economics, Elsevier, vol. 38(2), pages 137-182, March.
    8. Ayoki, Milton & Obwona, Marios & Ogwapus, Moses, 2005. "Tax Reforms and Domestic Revenue Mobilization in Uganda," MPRA Paper 80328, University Library of Munich, Germany.
    9. Kehoe, Timothy J. & Serra-Puche, Jaime, 1983. "A computational general equilibrium model with endogenous unemployment : An analysis of the 1980 fiscal reform in Mexico," Journal of Public Economics, Elsevier, vol. 22(1), pages 1-26, October.
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    Cited by:

    1. Buyinza, Faisal, 2011. "Performance and Survival of Ugandan Manufacturing firms in the context of the East African Community," Research Series 150477, Economic Policy Research Centre (EPRC).

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