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Aid and Public Sector Fiscal Behaviour in Failing States

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  • Feeny, Simon
  • McGillivray, Mark

Abstract

This paper looks at interactions between foreign aid and the public sector in developing countries, especially those considered to be fragile or failing states. A model is proposed which employs actual budgetary appropriations and revenue estimates (rather than estimated target variables) and allows for asymmetric preference. Variants of the model are estimated using time-series data for Papua New Guinea (PNG). PNG is classified as a fragile state by the international community owing to perceived policy and institutional inadequacies. Results obtained suggest that foreign aid increases consumption and investment expenditures and decreases tax revenues and the level of borrowing.

Suggested Citation

  • Feeny, Simon & McGillivray, Mark, 2009. "Aid and Public Sector Fiscal Behaviour in Failing States," MPRA Paper 21801, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:21801
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Aparajita Goyal & John Nash, 2017. "Reaping Richer Returns," World Bank Publications, The World Bank, number 25996, April.
    2. Rabia Butt & Attiya Yasmin Javid, 2013. "Foreign Aid and the Fiscal Behaviour of Government of Pakistan," PIDE-Working Papers 2013:96, Pakistan Institute of Development Economics.
    3. Thi Kim Cuong PHAM & Ngoc-Sang PHAM, 2017. "Economic growth and escaping the poverty trap: how does development aid work?," Working Papers P197, FERDI.
    4. Lledó, Victor & Poplawski-Ribeiro, Marcos, 2013. "Fiscal Policy Implementation in Sub-Saharan Africa," World Development, Elsevier, vol. 46(C), pages 79-91.
    5. Aaron Batten, 2011. "Aid and Oil in Papua New Guinea: Implications for the Financing of Service Delivery," Development Policy Centre Discussion Papers 1104, Development Policy Centre, Crawford School of Public Policy, The Australian National University.
    6. 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.
    7. Afridi, Muhammad Asim & Ventelou, Bruno, 2013. "Impact of health aid in developing countries: The public vs. the private channels," Economic Modelling, Elsevier, vol. 31(C), pages 759-765.
    8. Joseph David Barroso Vasconcelos de Deus & Helder Ferreira de Mendonça, 2015. "Empirical evidence on fiscal forecasting in Eurozone countries," Journal of Economic Studies, Emerald Group Publishing, vol. 42(5), pages 838-860, October.

    More about this item

    Keywords

    Foreign aid; taxes; public spending; fungibility; fragile states; failing states; Papua New Guinea;

    JEL classification:

    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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