Logo
Munich Personal RePEc Archive

Foreign aid, investment and fiscal policy behavior: theory and empirical evidence

Asongu, Simplice and Jellal, Mohamed (2014): Foreign aid, investment and fiscal policy behavior: theory and empirical evidence.

[thumbnail of MPRA_paper_64460.pdf]
Preview
PDF
MPRA_paper_64460.pdf

Download (668kB) | Preview

Abstract

The paper provides theoretical and empirical justifications for the instrumentality of foreign aid in stimulating private investment and fixed capital formation through fiscal policy mechanisms. We propose an endogenous growth theory based on an extension of Barro (1990) by postulating that the positive effect of aid mitigates the burden of the taxation system on the private sector of recipient countries. The empirical validity is based on 53 African countries for the period 1996-2010. While the findings on the tax effort channel are overwhelmingly consistent with theory across specifications and fundamental characteristics, those of the government expenditure channel are a little heterogeneous but broadly in line with the theoretical postulations. Justification for the slight heterogeneity and policy implications are discussed.

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.