"Fiscal Effects of Aid in Ethiopia: A Cointegrated VAR approach"
Abstract: In this chapter/paper, we look at the fiscal dynamics in Ethiopia. We estimate a cointegrated VAR (CVAR) model with five variables: government total expenditure, tax and non-tax revenue, and aid variables disaggregated into loans and grants, observed over the period of 1963-2009. We find that both aid variables are positively related to tax revenue in the long run, contrary to the hypothesis that recipient governments would use aid grants to substitute for tax revenue. Having failed to find evidence of 'negative' effects of aid on tax revenue, we also explore the relationship between different types of aid on different government spending components.
Sir Clive Granger BuildingUniversity of NottinghamUniversity Park Nottingham, NG7 2RD
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