Does Foreign Aid Promote the Expansion of Government?

Published

Journal Article (Review)

Building on the literature on public finance, I seek to advance our understanding of variations in government size by exploring the impact of official development assistance on fiscal policy. I hypothesize that foreign aid operates in accordance with the "flypaper effect," systematically generating incentives and opportunities for the expansion of government spending. Results from a time-series cross-sectional regression analysis of growth in government spending over the 1970-99 time period are consistent with the hypothesis. For middle- and lower-income nations, aid represents an important determinant of government expansion. Looking at the tax and revenue side of the equation, however, reveals a more perverse pattern of response: aid promotes not only increased spending but also reduced revenue generation. The results have important implications from both a theoretical and policy perspective. Inter alia they point to the potentially self-defeating nature of efforts to promote market-oriented programs of state retrenchment via development assistance as well as to the importance of incorporating international transfers into future research on government spending.

Full Text

Duke Authors

Cited Authors

  • Remmer, KL

Published Date

  • January 1, 2004

Published In

Volume / Issue

  • 48 / 1

Start / End Page

  • 77 - 92

International Standard Serial Number (ISSN)

  • 0092-5853

Digital Object Identifier (DOI)

  • 10.1111/j.0092-5853.2004.00057.x

Citation Source

  • Scopus