Aid, debt and fiscal policies in Senegal

Bazoumana Ouattara

75 citations0/0 files storedJournal of International Development

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International Development and Aid Local Government Finance and Decentralization Fiscal Policies and Political Economy

Abstract

Abstract This paper uses the fiscal response framework to study the effects of aid flows on key fiscal aggregates in Senegal, over the period of 1970–2000. Attention is given to the interplay between aid and debt. The paper contributes to the empirics of fiscal response modelling by deriving the standard errors and p values associated with the different mechanisms of the structural and reduced form equations. The main findings in this paper are: (i) relatively large shares of government resources are used to finance debt servicing; (ii) the impact of aid flows on domestic expenditure is statistically insignificant and (iii) debt servicing has a significant negative effect on domestic expenditure. The main policy implication of this study is that debt reduction could be a more effective policy tool than additional aid (loans) in financing pro‐poverty expenditure as well as public investment. Copyright © 2006 John Wiley & Sons, Ltd.

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References

2001Bounds testing approaches to the analysis of level relationships 1988Statistical analysis of cointegration vectors 1987Aid, the Public Sector and the Market in Less Developed Countries 1993Foreign Aid and the Question of Fungibility 1998Aid and the public sector in Pakistan: Evidence with endogenous aid 2002Foreign aid and fiscal response: Does aid disaggregation matter?2000Aid and Public Sector Behavior in Developing Countries

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