Fiscal federalism and foreign transfers: does inter-jurisdictional competition increase foreign aid effectiveness?

Christian Lessmann and Gunther Markwardt

No 10/10, Dresden Discussion Paper Series in Economics from Technische Universität Dresden, Faculty of Business and Economics, Department of Economics

Abstract: This paper empirically studies the impact of decentralization and inter-jurisdictional competition on foreign aid effectiveness. For this purpose we examine a commonly used empirical growth model, considering different measures of fiscal decentralization. Our panel estimations reveal that expenditure decentralization and inter-jurisdictional competition - reflected by the degree of tax revenue decentralization - negatively impact aid effectiveness. We therefore conclude that donor countries should carefully consider how both anti-poverty instruments - foreign assistance and decentralization - work together.

Keywords: Foreign Aid; Growth; Interjurisdictional Competition (search for similar items in EconPapers)
JEL-codes: H7 O1 O2 O4 (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuddps:1010

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