The dynamic effects of aid and taxes on government spending.

ABSTRACT: This paper examines the impact of foreign aid and taxes on government spending for 67 developing countries during 1980-2013 using dynamic heterogeneous (panel) time-series techniques. We find that spending, aid and tax ratios comprise an equilibrium (cointegrated) relation. On average, the aid coefficients (and marginal impacts) 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. Central to this heterogeneous relationship is the political calculus between aid and tax-measured according to accountability and bureaucratic costs-whereby recipients offset the political costs of raising taxes against the political costs of receiving more aid. Once measures of political costs are incorpora

SUBMITTER: Tagem AME 

PROVIDER: S-EPMC9684971 | biostudies-literature | 2022 Nov

REPOSITORIES: biostudies-literature