Aid and Public Sector Fiscal Behaviour in Failing States

Feeny, Simon and McGillivray, Mark (2009): Aid and Public Sector Fiscal Behaviour in Failing States.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Foreign aid, taxes, public spending, fungibility, fragile states, failing states, Papua New Guinea
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies; O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents; H - Public Economics > H6 - National Budget, Deficit, and Debt

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