Foreign Aid, Debt, Tax Revenue and Government Spending in South Asia: A Panel Analysis

Rozina Akter,Sakila Aziz Nila

doi:10.35649/kubr.2019.14.1.2

Abstract

Purpose: Over the years, tax revenue, foreign aid, and debt play a prominent role in finance the South Asian countries’ government spending. Thus, this paper aims to analyze the effects of foreign aid, debt, and tax revenue on government spending in South Asia. Methodology: The study considers six south Asian countries over 25 years from 1990-2014. The panel data method is used to analyze the impact of explanatory variables on the dependent variable. Findings: From the empirical analysis, it is found that foreign aid, tax revenue, and total debt have a positive impact on government spending. It indicates that when these variables increase, government spending also grows significantly. However, a higher interest rate ebbs the volume of receiving debt among the sampled countries. Originality: Under this circumstance, this paper advocate that rational use of tax revenue may abate the aid dependency and debt burden in South Asian countries.

Highlights

Foreign aid, debt and tax revenue are significant government spending elements, especially for second and third world countries
This study focuses on foreign aid, debt, and tax revenue on South Asia's government spending
The study intended to examine the effects of foreign aid, debt, and tax revenue on government spending in South Asia

Summary

Introduction

Debt and tax revenue are significant government spending elements, especially for second and third world countries. Aid fungible examines the inefficient use of foreign money, and the ultimate impact of aid is unsatisfactory among the recipient countries (Foster & Fozzard, 2000; Njeru, 2003; McGillivray & Ouattara, 2005; Chatterjee et al, 2012; Morrissey, 2012). This continued circumstance falls the recipient countries into a vicious circle of low foreign investment and savings gap (Taha & Loganathan, 2008). It is worth mentioning that nowadays, the donor countries have become every strict about giving the ODA and emphasize the recipient countries' fiscal discipline and reasonable policies (Njeru, 2003; McGillivray & Ouattara, 2005)

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