Hidden Bibliographic Details
| Other authors / contributors: | Ouedraogo, Rasmane, author, (IMF staff)
Tapsoba, Sampawende J.-A. (Sampawende Jules-Armand), author, (IMF staff)
International Monetary Fund, publisher.
International Monetary Fund. Fiscal Affairs Department, sponsor.
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| ISBN: | 9781475540413
1475540418
9781484382691
1484382692
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| ISSN: | 1018-5941
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| Digital file characteristics: | data file
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| Notes: | "June 2016."
"Fiscal Affairs Department."
Includes bibliographical references (pages 29-32).
Online resource; title from pdf title page (IMF.org Web site, viewed August 9, 2016).
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| Summary: | Foreign aid is a sizable source of government financing for several developing countries and its allocation matters for the conduct of fiscal policy. This paper revisits fiscal effects of shifts in aid dependency in 59 developing countries from 1960 to 2010. It identifies structural shifts in aid dependency: upward shifts (structural increases in aid inflows) and downward shifts (structural decreases in aid inflows). These shifts are treated as shocks in aid dependency and treatment effect methods are used to assess the fiscal effects of aid. It finds that shifts in aid dependency are frequent and have significant fiscal effects. In addition to traditional evidence of tax displacement and "aid illusion," we show that upward shifts and downward shifts in aid dependency have asymmetric effects on the fiscal accounts. Large aid inflows undermine tax capacity and public investment while large reductions in aid inflows tend to keep recipients' tax and expenditure ratios unchanged. Moreover, the tax displacement effects tend to be temporary while the impact on expenditure items are persistent. Finally, we find that the undesirable fiscal effects of aid are more pronounced in countries with low governance scores and low absorptive capacity, as well as those with IMF-supported programs.
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| Other form: | Print Version: Combes, Jean-Louis. What Does Aid Do to Fiscal Policy? New Evidence. Washington, D.C. : International Monetary Fund,2016 9781484382691
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| Standard no.: | 10.5089/9781484382691.001
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