Foreign Aid Fiscal Policy: Theory and Evidence

Simplice Asongu and Mohamed Jellal ()
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Mohamed Jellal: Rabat, Morocco

No 15/063, Research Africa Network Working Papers from Research Africa Network (RAN)

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 data from 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.

Keywords: Foreign Aid; Political Economy; Development; Africa (search for similar items in EconPapers)
JEL-codes: B20 F35 F50 O10 O55 (search for similar items in EconPapers)
Pages: 29
Date: 2015-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://publications.resanet.org/RePEc/abh/abh-wpap ... ory-and-Evidence.pdf Revised version, 2016 (application/pdf)

Related works:
Journal Article: Foreign Aid Fiscal Policy: Theory and Evidence (2016)
Working Paper: Foreign Aid Fiscal Policy: Theory and Evidence (2016)
Working Paper: Foreign Aid Fiscal Policy: Theory and Evidence (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:abh:wpaper:15/063

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