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Aid and government: A dynamic model of aid, income and fiscal behaviour
Author(s) -
White Howard
Publication year - 1993
Publication title -
journal of international development
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.533
H-Index - 66
eISSN - 1099-1328
pISSN - 0954-1748
DOI - 10.1002/jid.3380050306
Subject(s) - economics , government (linguistics) , investment (military) , public economics , government expenditure , value (mathematics) , macroeconomics , public finance , computer science , political science , philosophy , linguistics , politics , law , machine learning
A recent advance in the analysis of the impact of aid inflows on domestic savings has been models that focus specifically on the response of public savings to higher aid. The theoretical consensus of this new literature is that aid displaces taxes and that the increment to government expenditure is less than the value of the aid inflow. This paper presents a simple model that replicates this result and then shows that the result need no longer hold once we allow for feedback effects through higher income. Whether or not aid adversely affects taxes is shown to depend, inter alia , on the impact of aid on private investment.