Working Paper BETA #2019-22

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Title : Foreign aid, recipient government’s fiscal behavior, and economic growth

Author(s) : Ngoc-Sang PHAM, Thi Kim Cuong PHAM

Abstract : The paper investigates the nexus between foreign aid, fiscal policy and economic outcomes in a small recipient country. Foreign aid may increase not only government expenditures but also private capital, and hence improve economic growth. However, it may also discourage the recipient’s tax effort. The effects of foreign aid on fiscal policy and economic growth depend on the circumstances of the recipient country, including its development level, the TFP, the efficiency of public investment, and in particular the government’s concern for the population’s welfare.

Key-words : Foreign aid, fiscal behavior, public investment, public services, economic growth

JEL Classification : H2, H5, O4