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Taxing Fragmented Aid to Improve Aid efficiency

Emmanuelle Auriol () and Josepa Miquel-Florensa ()

No 15-600, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We present a model with two donors-principals that provide funds to a unique recipient-agent. Each donor decides how to allocate his aid funds between a pooled and a donor specific unilateral project. Both principals and the agent value the output produced with the principals' pooled and two unilateral funded projects. However the donors have a bias in favor of their own unilateral project, which leads them to over-invest in these projects. The agent establishes a tax on the unilateral projects, which acts as a protection measure against biased allocation by the principals. The optimal tax imposed by the recipient on unilateral projects varies depending on the total amount of aid provided by the donor and on the productivity of his unilateral project. We present empirical support on the donors' preferences for unilateral projects, and how allocations and fragmentation are affected by recipient's characteristics.

Keywords: Aid fragmentation; incentives; multi-principal; Development (search for similar items in EconPapers)
JEL-codes: D82 D86 F35 O19 (search for similar items in EconPapers)
Date: 2015-08
New Economics Papers: this item is included in nep-ppm
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Journal Article: Taxing fragmented aid to improve aid efficiency (2019) Downloads
Working Paper: Taxing Fragmented Aid to Improve Aid Efficiency (2015) Downloads
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