Browsing by Author "Alemu, Berhanu"

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    Fiscal Effects of Aid in Ethiopia
    (A.A.U, 2007-03) Alemu, Berhanu; Mulat, Teshome(Dr.)
    A core deficiency o f the aid - growth literature is that, it fails to recognize explicitly that most aid conventionally defined is given primarily to the government. And any effect of aid on growth and poverty reduction will depend on government behavior. To identify the effects of aid on public sector aggregates, both qualitative and empirical methodologies are used. Vector auto regressive methods are applied to 39 years of annual data in Ethiopia to model the effect of aid on fiscal behavior. Results suggest that; First, an increase in grants and an increase in foreign loans results in an increase in recurrent budget expenditure and a decrease in capital budget expenditure. This might show the existence of fungibility. Second, an increase in grants, foreign loans and ODA results in an in crease in domestic borrowing. Which might require policy measure towards the decrease in the domestic borrowing. Third, an increase in grants results in an increase in tax revenue and on the contrary an increase in foreign loans results in a decrease in tax revenue. This unclear effect might have been caused by the different nature of grants and foreign loans. As the total effect is represented by the ODA, an increase in ODA results in an increase in the tax revenue which implies that ODA does not discourage taxation efforts . Forth, a rise in ODA results in an in crease in the tax revenue, domestic borrowing, recurrent expenditure and capital expenditure, i. e. a rise in all fiscal aggregates. This could probably be the effect part of the ODA which is not included in the budget. And this may require the need for developing systematic guide lines as to how all ODA's should be indicated in the budget,