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International aid corruption and fiscal behavior policy

Asongu, Simplice and Jellal, Mohamed (2014): International aid corruption and fiscal behavior policy.

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The Okada & Samreth (2012, EL) and Asongu (2012, EB; 2013, EEL) debate on ‘the effect of foreign aid on corruption’ has had an important influence in policy and academic circles. This paper provides a unifying framework by using investment and fiscal behavior transmission channels in 53 African countries for the period 1996-2010. The richness of the dataset enables us to disaggregate countries into 16 panels depicting fundamental characteristics of corruption based on wealth-effects, legal origins, openness to sea, petroleum-exporting, regional proximity and religious domination. Findings unite the two streams of the debate and broadly suggest that while the ‘government’s final consumption expenditure’ channel is consistent with the latter author, the investment and tax effort channels are in line with the former authors. Justifications for the nexuses are provided. Policy implications on how to use foreign aid constraints in managing fiscal behavior as means of reducing (increasing) corruption (corruption-control) are discussed.

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