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Aid and Public Sector Behavior in Developing Countries
Author(s) -
McGillivray Mark
Publication year - 2000
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/1467-9361.00084
Subject(s) - economics , developing country , consumption (sociology) , investment (military) , revenue , capital expenditure , public expenditure , public finance , macroeconomics , affect (linguistics) , econometric model , public sector , public capital , capital (architecture) , monetary economics , public investment , fiscal policy , public economics , econometrics , finance , economy , economic growth , history , social science , linguistics , philosophy , archaeology , sociology , politics , political science , law
This paper analyzes developing‐country public‐sector fiscal behavior. It is concerned specifically with how aid inflows affect various categories of revenue and expenditure. An econometric model is developed, which differs from those used in previous studies by allowing domestic borrowing to finance both capital and recurrent expenditure. Structural and reduced‐form equations are derived and estimated using 1956–95 time‐series data for Pakistan. Results indicate that aid is allocated mainly to investment, is positively associated with both investment and consumption expenditure, and has no final impact on taxation.