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Foreign Aid and Fiscal Behavior in a Bounded Rathionality Model: Different Policy Regimes

Author

Listed:
  • Ira N. Gang

    (Rutgers University)

  • Haider Ali Khan

    (GSIS, U of Denver and ADB)

Abstract

We examine how the source of foreign aid affects the composition of the recipient government's spending. Does the source of aid -- bilateral or miltilateral -- influence ricipient policy-makers' choice between development and nondevelopment expenditure? We depart from previous literature by introducing strong asymmetries in policy-maker's preferences. With financial constraints set by foreign aid and domestic revenues, this formalization allows us to model and estimate the fiscal behavior of government policy-makers in the presense of foreign aid.

Suggested Citation

  • Ira N. Gang & Haider Ali Khan, 1998. "Foreign Aid and Fiscal Behavior in a Bounded Rathionality Model: Different Policy Regimes," Departmental Working Papers 199812, Rutgers University, Department of Economics.
    • Handle: RePEc:rut:rutres:199812
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    1. Europe needs another Marshall Plan to save crisis-ravaged euro
      by Haider Khan, John Evans Distinguished University Professor at University of Denver in The Conversation on 2015-04-28 15:00:14

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    Cited by:

    1. Haider A. Khan, 2004. "General Conclusions: From Crisis to a Global Political Economy of Freedom," Palgrave Macmillan Books, in: Global Markets and Financial Crises in Asia, chapter 9, pages 193-211, Palgrave Macmillan.
    2. Ouattara, B., 2006. "Foreign aid and government fiscal behaviour in developing countries: Panel data evidence," Economic Modelling, Elsevier, vol. 23(3), pages 506-514, May.
    3. José Antonio Alonso & Carlos Garcimartín, 2011. "Does Aid Hinder Tax Efforts? More Evidence," Discussion Papers 11/04, University of Nottingham, CREDIT.
    4. Mark McGillivray, 2009. "Aid, Economic Reform, and Public Sector Fiscal Behavior in Developing Countries," Review of Development Economics, Wiley Blackwell, vol. 13(s1), pages 526-542, August.
    5. Feeny, Simon, 2007. "Foreign Aid and Fiscal Governance in Melanesia," World Development, Elsevier, vol. 35(3), pages 439-453, March.
    6. Bazoumana Ouattara, 2006. "Aid, debt and fiscal policies in Senegal," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(8), pages 1105-1122.
    7. Simon Feeny, 2006. "Policy preferences in fiscal response studies," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(8), pages 1167-1175.
    8. Epstein, Gil S. & Gang, Ira N., 2009. "Good governance and good aid allocation," Journal of Development Economics, Elsevier, vol. 89(1), pages 12-18, May.
    9. Khan, Haider, 2013. "Globalization and Democracy: A Short Introduction," MPRA Paper 49515, University Library of Munich, Germany.
    10. Sadegh Bakhtiari & Hojjat Izadkhasti & Seyed Komail Tayebi, 2013. "Crowding out Effect of Foreign Aid in Selected Developing Countries: Panel Data Evidence," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 18(2), pages 51-64, spring.
    11. Feeny, Simon & McGillivray, Mark, 2010. "Aid and public sector fiscal behaviour in failing states," Economic Modelling, Elsevier, vol. 27(5), pages 1006-1016, September.
    12. Mark McGillivray & Oliver Morrissey, 2001. "Fiscal Effects of Aid," WIDER Working Paper Series DP2001-61, World Institute for Development Economic Research (UNU-WIDER).
    13. B Ouattara, 2004. "Does Aid Promote Fiscal Indiscipline? Evidence from Dynamic Panel Model," Economics Discussion Paper Series 0407, Economics, The University of Manchester.
    14. Jose L. Diaz‐Sanchez & Abrams M. E. Tagem & Joana Mota, 2022. "Tax revenue effort and aid in fragile states: The case of Comoros," South African Journal of Economics, Economic Society of South Africa, vol. 90(2), pages 175-195, June.
    15. Gil S. Epstein & Ira N Gang, 2006. "The Hope for Hysteresis in Foreign Aid," Departmental Working Papers 200628, Rutgers University, Department of Economics.
    16. George Mavrotas & Bazoumana Ouattara, 2007. "Aid Modalities and Budgetary Response: Panel Data Evidence," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 143(4), pages 720-741, December.

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    More about this item

    Keywords

    foreign aid; India; international assistance;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid

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