Fiscal policy can foster growth and human development through a number of different channels. These channels include the macro-economic (for example, through the influence of the budget deficit on growth) as well as the microeconomic (through its influence on the efficiency of resource use). But how precisely do these channels work in developing countries? Do the insights gleaned from the vast body of research on these topics in industrial countries carry over to developing countries?1
Basic education combined with social mobility is a prerequisite for successful economic development. Basic education improves productivity through investment in human capital, and also through beneficial externalities when more educated people complement one another in productive activities. Basic education also improves the quality of life by allowing people to read, write, and do arithmetic calculations. It is a responsibility of government to ensure that children have quality basic education independently of their parents’ social and economic circumstances. Ideally, therefore, all children should have access to free-access, publicly financed, quality schools.1 Yet, in many poor countries, education of children is not free; rather, parents pay fees or user payments for the education of their children. The user payments in some cases supplement public spending on schools. In other cases, where no public financing is available, user payments self-finance community schools that are organized and funded by communities and parents independently of government.
Governments provide a host of goods and services to their populations, to achieve various economic and social objectives. The efficiency with which these goods and services are provided is important, not only in the debate on the size of the government and the possible role of the private sector,1 but also in macroeconomic stabilization and economic growth. The purpose of this paper is to assess the efficiency of government spending on education and health in 37 countries in Africa, both in relation to each other and in comparison with countries in Asia and the Western Hemisphere. Besides ranking countries within Africa for their efficiency during a given time period and over time, this paper assesses changes in efficiency in the three regions.
One of the central challenges facing low-income and developing countries is to mobilize sufficient tax revenue to sustainably finance, when combined with whatever aid is available, the expenditures needed for growth and poverty relief—and to do so in a way that does not itself undercut those objectives by unduly worsening preexisting distortions or inequities. This chapter seeks to describe and assess the way in which developing countries were addressing these problems at the turn of the century. More particularly, it focuses on the experience of the 1990s—roughly the period since the major survey of taxation in developing countries by Burgess and Stern (1993). While experiences have naturally varied quite significantly across countries over this decade, and although 10 years is a relatively short period in the life of a tax system—indeed, that may be one of the central lessons to be drawn from the analysis in this chapter—some common themes nevertheless emerge. And some of them are troubling.
Ethiopia is one of the poorest countries in the world, with a per capita gross national income of less than one-fourth of the sub-Saharan average.1 It also has some of the poorest human development indicators in the world2 with a national poverty level at about 44 percent and more than 80 percent of the population living on less than U.S.$1 a day. It has experienced a war with neighboring Eritrea ending in 2000, as well as frequent natural disasters that have ravaged many parts of the country and hampered development plans. The economy of Ethiopia is very agrarian, focusing mainly on the production and export of commodities such as coffee. Consequently, the country is particularly vulnerable to drought and the adverse effects of fluctuations in the commodity prices.
The debate on the effectiveness of foreign aid has revolved for some time around the relative efficiency of loans versus grants. Since the early 1960s, an often-repeated view has been that loans are used more efficiently than grants because they are expected to be repaid. Furthermore, the need for repayment motivates governments to select projects or programs whose benefits exceed costs (see Schmidt, 1964). Therefore, concessional loans are better for meeting the objectives underlying development assistance (see Singer, 1961).
There has been a renewed call within the international community for industrial countries to meet the goal of devoting 0.7 percent of their GNP for official development assistance (ODA). Originally proposed by the Pearson Commission in 1968, only a few countries are currently meeting this target and the average ODA level is only a third of the target. Raising ODA to 0.7 percent of industrial country GNP is an important element in the strategy for reducing global poverty and meeting the Millennium Development Goals (MDGs) by 2015. It could also lead to an expanded supply of needed global public goods.
Foreign aid has dwindled in the budgets of many donor countries during the past several years, but it continues to loom very large for many of the recipients.1 In many developing countries, foreign aid receipts are an important source of revenue and thus a key element in fiscal policy. Where domestic resources are very limited, aid may be an indispensable source of financing, in particular for expenditures in areas such as health, education, and public investment that are essential to raise the living standards of poor people in developing countries.
The debate on aid effectiveness has largely focused on the impact of aggregate “development assistance” on economic growth or economic development more broadly (Easterly, 2001; World Bank, 1998). As a result, relatively little attention has been paid to how well certain components of foreign aid achieve their stated objectives, such as disaster relief, humanitarian assistance, and food aid. In this paper, we focus on one particularly important component of foreign aid—food aid—and evaluate whether it helps stabilize consumption in recipient countries, and whether it has been targeted to those countries most in need.
Contrary to expectations, the end of the Cold War has not been a harbinger of peace. There has been a proliferation of armed conflicts around the world over the past dozen years. In particular, terrorist groups have become increasingly sophisticated, daring, and destructive. More than 4 million people are estimated to have perished in violent conflicts between 1989 and 2000, and 37 million people have been displaced as refugees, either inside or outside their countries (World Bank, 2000). In 2000, there were 25 major armed conflicts around the world, of which 23 were intrastate conflicts (SIPRI Yearbook 2001).1 International terrorist attacks increased from an average of about 342 a year between 1995 and 1999 to 387 a year between 2000 and 2001.2 Most of the armed conflicts and terrorist activities have taken place in low- and middle-income countries. Between 1996 and 2000, almost 70% of the major armed conflicts, more than 20% of all international terrorist attacks, and over 70% of all casualties due to such attacks took place in Asia and Africa.