Fiscal Federalism and Foreign Transfers: Does Inter-Jurisdictional Competition Increase Foreign Aid Effectiveness?

24 Pages Posted: 11 Jan 2011 Last revised: 14 Jan 2011

See all articles by Gunther Markwardt

Gunther Markwardt

Dresden University of Technology - Faculty of Economics and Business Management

Christian Lessmann

Technology University of Braunschweig; Ifo Branch Dresden; CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written: October 10, 2010

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

JEL Classification: O1, O2, O4, H7

Suggested Citation

Markwardt, Gunther and Lessmann, Christian, Fiscal Federalism and Foreign Transfers: Does Inter-Jurisdictional Competition Increase Foreign Aid Effectiveness? (October 10, 2010). Available at SSRN: https://ssrn.com/abstract=1737883 or http://dx.doi.org/10.2139/ssrn.1737883

Gunther Markwardt

Dresden University of Technology - Faculty of Economics and Business Management ( email )

Mommsenstrasse 13
D-01062 Dresden, Saxony
Germany
++49 (0)351/463-33972 (Phone)

Christian Lessmann (Contact Author)

Technology University of Braunschweig ( email )

Abt-Jerusalem-Str. 7
Braunschweig, D-38106
Germany

Ifo Branch Dresden ( email )

Poschinger Str. 5
Munich, 01069
Germany

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

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