Aid Allocation, Growth and Welfare With Productive Public Goods

Agénor, Pierre‐Richard

doi:10.1002/ijfe.465

Cited by 20 publications

(10 citation statements)

References 40 publications

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“…52 As in Agénor and Yilmaz (2013), it could be assumed also that a fraction of public capital is used directly as collateral. 53 This outcome would be different, of course, if as in Agénor (1997), households face a specific risk…”

Section: Alternative Specifications Of the Risk Premiummentioning

confidence: 99%

Optimal fiscal management of commodity price shocks

Agénor

2016

Journal of Development Economics

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A dynamic stochastic general equilibrium model is used to study the optimal fiscal response to commodity price shocks in a small open low-income country. The model accounts for imperfect access to world capital markets and a variety of externalities associated with public infrastructure, including utility benefits, a direct complementarity effect with private investment, and reduced distribution costs. However, public capital is also subject to congestion and absorption constraints, with the latter affecting the efficiency of infrastructure investment. The model is parameterized and used to examine the transmission process of a temporary resource price shock under a benchmark case (cash transfers) and alternative fiscal rules, involving either higher public spending or accumulation in a sovereign fund. The optimal allocation rule between spending today and asset accumulation is determined so as to minimize a social loss function defined in terms of the volatility, relative to the benchmark case, of private consumption and either the nonresource primary fiscal balance or a more general index of macroeconomic stability, which accounts for the volatility of the real exchange rate. Sensitivity analysis is conducted with respect to various structural parameters and model specification.

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Section: Alternative Specifications Of the Risk Premiummentioning

confidence: 99%

Optimal fiscal management of commodity price shocks

Agénor

2016

Journal of Development Economics

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“…With = 0, the production technology is Cobb-Douglas. 5 We recognize that a more general speci…cation of (1) would be a nested CES function G 1 denotes the amount of productive public services provided by the government (e.g. public law enforcement, public education services), whereas G 2 denotes the stock of public capital (e.g.…”

Section: The Modelmentioning

confidence: 99%

Fiscal Policy and Growth with Complementarities and Constraints on Government

2011

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp11018.pdf Non-Technical SummaryGovernments are subject to a number of constraints that affect their ability to set fiscal policy optimally. This paper considers two. Firstly, governments are inevitably imperfectly informed about the production technology of firms and household preferences which both determine what level and what composition of public spending are optimal. Secondly, governments are constrained in their ability to change various elements of fiscal policy, due to, for example, quasi-fixed expenditure items such as social welfare benefits linked to entitlement conditions and interest payments that depend on the stock of public debt accumulated in the past. Other factors that constrain governments in this respect include limited administrative capacity (governments are only able to concentrate on a limited number of issues at a time) and limited political capital required for fiscal changes. We refer to this type of constraint as budget rigidities.In this paper we derive the optimal level and the optimal composition of public spending in the situation in which governments are constrained in their ability to alter both and know little about the relative growth benefits of different public spending categories. As a theoretical framework, we use endogenous growth models with public finance in which fiscal policy affects the long-run growth rate of the economy. Previous papers that have used this class of models typically ignore these constraints on governments, and assume that private and public inputs are substitutes.We generate a number of interesting results with respect to optimal fiscal policy in the presence of budget rigidities, informational limitations, or both in the realistic case when private and public inputs to private production that are provided by the government are complements. First, we show that the optimal level of productive public spending and the composition are interrelated: in particular, the optimal level of spending is higher when the composition is suboptimal, and the optimal share of public resources allocated to public investment may be very low when the level of spending is either too high or too low due to budget rigidities. This result contrasts with the common perception that public investment is the most important public spending category for long-run growth.Secondly, we show that imperfect knowledge of the government is much more...

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“…They also find that the impact of an aid program depends on the recipient's opportunities for co‐financing projects using internal resources. Agénor and Yilmaz () also contribute to this literature by considering two productive public services (infrastructure and health) and both domestic and imported goods. This allows them to study the impact of aid shocks on the real exchange rate…”

Section: Introductionmentioning

confidence: 99%

The Impact of Foreign Aid Linked to Infrastructure and Pollution Abatement

Barañano

Martín

2015

Rev International Economics

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This paper studies the macroeconomic effects of foreign aid taking into account environmental quality. We develop a dynamic equilibrium model in which public investments in both infrastructure and pollution abatement can be co-financed using domestic resources and international aid. We consider untied aid, aid fully tied to either infrastructure or abatement and aid equally tied to both expenditures. We find that when the extent to which agents are affected by environmental problems is taken into account, then, regardless of the chances of substitution between factors, transfers linked to both infrastructure and pollution abatement may be the best welfare-enhancing alternative.

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Aid Allocation, Growth and Welfare With Productive Public Goods

Cited by 20 publications

References 40 publications

Optimal fiscal management of commodity price shocks

Optimal fiscal management of commodity price shocks

Fiscal Policy and Growth with Complementarities and Constraints on Government

The Impact of Foreign Aid Linked to Infrastructure and Pollution Abatement

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