Fungibility and the Choice of Aid Modalities The Red Herring Revisited

Leiderer, Stefan

doi:10.2139/ssrn.2362349

“…Hines and Thaler 1995). In the fungibility literature, the flypaper effect is also quite often used to describe a situation when recipient's expenditures increase by more than the amount of aid received (Leiderer, 2012;Pettersson, 2007b). See McGillivray and Morrissey (2000) for discussion.…”

Section: Comments On Methodologymentioning

confidence: 99%

The Impact of Aid on Total Government Expenditures: New Evidence on Fungibility

Marc

¹

2016

Review Development Economics

10

2

1

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This study has been prepared within the UNU-WIDER visiting scholar and PhD internship programmes. Terms of use: Documents in Copyright © UNU-WIDER 2015ISSN 1798-7237 ISBN 978-92-9230-895-7 Typescript prepared by the author.UNU-WIDER gratefully acknowledges the financial contributions to the research programme from the governments of Denmark, Finland, Sweden, and the United Kingdom.The World Institute for Development Economics Research (WIDER) was established by the United Nations University (UNU) as its first research and training centre and started work in Helsinki, Finland in 1985. The Institute undertakes applied research and policy analysis on structural changes affecting the developing and transitional economies, provides a forum for the advocacy of policies leading to robust, equitable and environmentally sustainable growth, and promotes capacity strengthening and training in the field of economic and social policy-making. Work is carried out by staff researchers and visiting scholars in Helsinki and through networks of collaborating scholars and institutions around the world.UNU-WIDER, Katajanokanlaituri 6 B, 00160 Helsinki, Finland, wider.unu.eduThe views expressed in this publication are those of the author(s). Publication does not imply endorsement by the Institute or the United Nations University, nor by the programme/project sponsors, of any of the views expressed.Abstract Aid is said to be fungible at the aggregate level if it raises government expenditures by less than the total amount. This happens when the recipient government decreases domestic revenue, decreases net borrowing, or when aid bypasses the budget. This study makes three contributions to both fungibility and fiscal response literature. First, fungibility at the aggregate level is re-examined on a bigger recent panel dataset, distinguishing between short-and longterm impact of aid. The results indicate that aid is partly fungible in the long run and highly fungible in the short run. Second, to account for aid bypassing the budget, technical cooperation is used as a proxy for off-budget aid. Off-budget aid is found to be non-fungible and on-budget aid is partly fungible. Third, fungibility of bilateral and multilateral aid is analysed: the results indicate lower fungibility of multilateral aid.

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“…Hines and Thaler 1995). In the fungibility literature, the flypaper effect is also quite often used to describe a situation when recipient's expenditures increase by more than the amount of aid received (Leiderer, 2012;Pettersson, 2007b). See McGillivray and Morrissey (2000) for discussion.…”

mentioning

confidence: 99%

The impact of aid on total government expenditures: New evidence on fungibility

Marc¹

2015

WIDER Working Paper

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte.Abstract Aid is said to be fungible at the aggregate level if it raises government expenditures by less than the total amount. This happens when the recipient government decreases domestic revenue, decreases net borrowing, or when aid bypasses the budget. This study makes three contributions to both fungibility and fiscal response literature. First, fungibility at the aggregate level is re-examined on a bigger recent panel dataset, distinguishing between short-and longterm impact of aid. The results indicate that aid is partly fungible in the long run and highly fungible in the short run. Second, to account for aid bypassing the budget, technical cooperation is used as a proxy for off-budget aid. Off-budget aid is found to be non-fungible and on-budget aid is partly fungible. Third, fungibility of bilateral and multilateral aid is analysed: the results indicate lower fungibility of multilateral aid.

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“…Incentives can take monetary and non‐monetary forms (such as rules and regulations). Bjornestad () identified four kinds of fiscal incentives: Fiscal resources, which are fiscal transfers from the central government, for example, additional grants for marginalised regions or prioritised areas. Fiscal responsibility, which is the provision of increased responsibility for revenue collection and delivery of services. Fiscal autonomy, which is the provision of increased power to promote or respond to local needs and preferences for public spending. Fiscal accountability, which builds into the system mechanisms to ensure that decision makers are held to account by their constituents. The last of these four, in the form of outcome‐based incentives and accountability mechanisms, has received most attention from researchers and policymakers in efforts to devise ways to improve local government performance by overcoming fungibility problems, mismatches of priorities between central and local governments, principal/agent problems, and moral hazard problems (see,e.g., Eldridge & Palmer, ; Leiderer, ; Shah, ).…”

Section: The International Literaturementioning

confidence: 99%

“…Leiderer () emphasised the importance of principal/agent problems in the relationship between central and local governments. In this case, the central government (the principal) is transferring funds to the local government (its agent) in order for it to deliver certain services.…”

Section: The International Literaturementioning

confidence: 99%

Solutions to poor service delivery in Papua New Guinea

Duncan

¹

,

Banga

²

2018

Asia & Pacific Policy Stud

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The paper discusses the problems that have plagued service delivery in Papua New Guinea-both over the long term and with the rollout of the District Development Authority Act of 2014. Various principal/agent and moral hazard problems are identified as well as the persistent poor delivery of national government funds to the local level; the difficulty of recruiting civil service skills into positions in local-level government; and confirmation that the power to make decisions at the district level remains much the same as before with the composition and influence of the District Development Authority Boards little changed from the former arrangements. Looking at service delivery from a supply-demand perspective, ways are suggested in which improvements may be realised. It appears more likely that improvements will come from an emphasis on increasing the demand for better governance of service delivery rather than from continuing to seek improvements in the supply side of service delivery.This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes.

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Fungibility and the Choice of Aid Modalities The Red Herring Revisited

Cited by 24 publications

References 43 publications

The Impact of Aid on Total Government Expenditures: New Evidence on Fungibility

The Impact of Aid on Total Government Expenditures: New Evidence on Fungibility

The impact of aid on total government expenditures: New evidence on fungibility

Solutions to poor service delivery in Papua New Guinea

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