Fiscal Reforms and the Fiscal Effects of Aid in Uganda

Authors: Bwire, T., Morrissey, O. and Lloyd, T.

http://eprints.bournemouth.ac.uk/24496/

Journal: Journal of Development Studies

Publisher: Taylor & Francis (Routledge): SSH Titles

ISSN: 1743-9140

A dynamic relationship between foreign aid and domestic fiscal variables in Uganda is analysed using a Cointegrated Vector Autoregressive model over the period 1972-2008. Results show that aid is a significant element of long-run fiscal equilibrium, is associated with increased tax effort and public spending, and reduced domestic borrowing. Shocks to tax revenue are the pulling forces, while those to domestic borrowing, government spending and aid are the pushing forces of the system. Aid has contributed to improved fiscal performance in Uganda, although the slow growth in tax revenue and regular aid shortfalls prevented sustaining a balanced budget inclusive of aid. In terms of policy, it is crucial to increase the reliability and predictability of aid, coordinate aid delivery systems and make aid more transparent. This involves effort on behalf of donors and the government.

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Authors: Bwire, T., Lloyd, T. and Morrissey, O.

http://eprints.bournemouth.ac.uk/24496/

Journal: Journal of Development Studies

Volume: 53

Issue: 7

Pages: 1019-1036

eISSN: 1743-9140

ISSN: 0022-0388

DOI: 10.1080/00220388.2017.1303677

© 2017, Published by Informa UK Limited, trading as Taylor & Francis Group © 2017 UNU-WIDER. Uganda implemented public expenditure and revenue management reforms from the early 1990s with specific aims of improving budget planning and aligning aid with fiscal priorities. The dynamic relationship between aid and domestic fiscal aggregates is analysed using a Cointegrated Vector Autoregressive model with annual data for 1972–2008 and quarterly data for 1997–2014. Aid has been a significant element of long-run fiscal equilibrium, associated with increased tax effort and public spending and reduced domestic borrowing. Fiscal reforms have improved aid and expenditure management, contributing to improved fiscal performance in Uganda, with lessons for other African countries.

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