Conditioning Aid on Social Expenditures

16 Pages Posted: 29 Jan 2008

Abstract

Aid conditionality forces countries to adopt policies that they would not otherwise choose. We examine how government discretion should be so constrained when the donor cannot fully control public expenditures, but instead can influence a less disaggregated indicator of public policy, namely the allocation of public spending between the social sectors (e.g. education, health, etc.) on the one hand and more traditional public goods (e.g. infrastructure) on the other. We first show how budget allocations will be altered when recipient government preferences are known i.e. we characterize what policies the donor should buy and how a given aid budget should be allocated between different types of countries. When recipient government preferences are not known by the donor, the permitted policies are distorted due to incentive constraints, and the extent to which aid flows are optimally differentiated between different countries is reduced.

Suggested Citation

Jack, William G., Conditioning Aid on Social Expenditures. Economics & Politics, Vol. 20, Issue 1, pp. 125-140, March 2008. Available at SSRN: https://ssrn.com/abstract=1087478 or http://dx.doi.org/10.1111/j.1468-0343.2007.00325.x

William G. Jack (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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