Arbeitspapier
Aid, taxes and government spending: A heterogeneous, cointegrated panel analysis
A substantial amount of aid to developing countries is given to the government, or goes through the budget, meaning it should have an impact on government fiscal behaviour (particularly on government spending). The few existing cross-country empirical studies on the effects of aid on government spending neglect time series properties, cross-country (recipient) heterogeneity and the potential for cross-country correlation. This paper examines the impact of foreign aid and taxes on government spending for a sample of 69 developing countries over 1980-2013, taking account of dynamics characterising fiscal data, cross-country heterogeneity and the distorting impact of cross-section dependence, by applying the Pesaran (2006) CCE Mean Group estimator. We show that spending, net aid (as well as variants including grants and loans) and taxes comprise an equilibrium (cointegrated) relation. Our results provide robust evidence of a positive, long-run (as well as short-run) association between aid and spending. On average, the aid coefficients are positive but smaller than the tax coefficients, indicating that in the long-run and short-run taxes have a stronger association with expenditures than aid.
- Language
-
Englisch
- Bibliographic citation
-
Series: CREDIT Research Paper ; No. 17/02
- Classification
-
Wirtschaft
Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models
Fiscal Policy
Foreign Aid
- Subject
-
aid
tax revenue
factor models
nonstationary panel econometrics
- Event
-
Geistige Schöpfung
- (who)
-
Tagem, Abrams M. E.
- Event
-
Veröffentlichung
- (who)
-
The University of Nottingham, Centre for Research in Economic Development and International Trade (CREDIT)
- (where)
-
Nottingham
- (when)
-
2017
- Handle
- Last update
-
10.03.2025, 11:43 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
- Tagem, Abrams M. E.
- The University of Nottingham, Centre for Research in Economic Development and International Trade (CREDIT)
Time of origin
- 2017
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