This paper examines the link between foreign aid and the composition of government spending in aid-recipient countries. Two questions are addressed: (i) does foreign aid crowd out government spending in aid-recipient countries, and (ii) does the degree of fungibility vary across different categories of aid? Using a panel dataset of 67 countries for 1972-2000 we find that at the aggregate level ...

Using a rich data set on government spending forecasts, we estimate the effects of unexpected government spending both when the nominal interest rate is near zero lower bound (ZLB) and outside of the ZLB period in Japan. The output multiplier is 1.5 on impact in the ZLB period, while it is 0.7 outside of the ZLB period. We estimate that the government spending shocks increase both private consu...

Elected representatives have little incentive to pursue the interests of those electing them once they are elected. This well-known principle-agent problem leads, in a variety of theories of government, to nonoptimally large levels of government expenditure. An implication is that budgetary rules are seen as necessary to constrain politicians’ tax and spending behavior. Popular among such const...

 The swell in government spending threatens to diminish long term growth potential in many nations. Our study of 37 countries reveals how enlarged government spending meaningfully dents the efficiency of investment and potential for future growth.  In response to the financial crisis, Greece, the UK, and Spain implemented the loosest fiscal policies during the 2008-2010 period, among 37 natio...

Donors are concerned about how their aid is used, especially how it affects fiscal behaviour by recipient governments. This study reviews the recent evidence on the effects of aid on government spending and tax effort in recipient countries, concluding with a discussion of when (general) budget support is a fiscally efficient aid modality. Severe data limitations restrict inferences on the rela...

Using a set of cointegration and error correction models with Threshold Autoregressive (TAR) or Momentum Threshold Autoregressive (MTAR) asymmetric adjustment, we investigate whether the effects of fiscal policy (i.e. expansionary or contractionary government spending shocks) on interest rates in Japan are asymmetric or not. Forty years of quarterly series on price of oil, Consumer Price Index ...

Using state-dependent local projection methods and historical U.S. data, we find that government spending multipliers are considerably larger in periods of private debt overhang. In particular, we find significant crowding-out of personal consumption and investment in low private debt states, resulting in multipliers that are below one. Conversely, in periods of private debt overhang, there is ...