Arbeitspapier
The Causal Links between Aid and Government Expenditures
The most recent literature on aid effectiveness finds a positive effect of aid on growth. To the extent that aid goes through the budget, this either reflects an aid-financed increase in government expenditures (quantity effect) or an improvement in the use of government resources as a result of donor involvement and lower taxes (quality effect). This study investigates the causal link between on-budget aid and government expenditures using a large cross-country panel data set for 53 countries and recent methodology to test Granger causality in heterogeneous panels. I find that in most countries donors do not change aid in response to changes in the level of government expenditures and that recipient governments react to aid by changing the way they use their own resources rather than by increasing spending. Contrary to conventional wisdom, there is little support for a quantity effect: aid Granger causes government expenditures in only eight countries. This suggests that aid substitutes for domestic government revenue and that aid is effective largely through the quality effect.
- Language
-
Englisch
- Bibliographic citation
-
Series: Tinbergen Institute Discussion Paper ; No. 14-012/V
- Classification
-
Wirtschaft
Fiscal Policy
Foreign Aid
National Government Expenditures and Related Policies: General
Fiscal and Monetary Policy in Development
- Subject
-
foreign aid
government expenditures
Granger causality
fungibility
- Event
-
Geistige Schöpfung
- (who)
-
Marc, Lukasz
- Event
-
Veröffentlichung
- (who)
-
Tinbergen Institute
- (where)
-
Amsterdam and Rotterdam
- (when)
-
2014
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Marc, Lukasz
- Tinbergen Institute
Time of origin
- 2014
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