Seminar Papers, Institute for International Economic Studies, Stockholm University
Collusion Among Interest Grops: Foreign Aid and Rent Dissipation
Abstract: This paper develops a game-theoretic model of public
policy in a developing country in order to explain a number of empirical
regularities. It is shown that under certain circumstances, an increase in
government revenue will be completely crowded out by increased rent
dissipation, leaving the provision of public goods unaltered. In this
model, there are two possible ways in which foreign aid may affect the
outcome. First, as foreign aid to a large extent can be seen as general
budget support, the paper provides an explanation for why increased
disbursements do not necessarily lead to higher provision of public goods.
Second, the mere fact that the donor is expected to allocate aid according
to the recipients' future needs may increase rent dissipation and reduce
the number of periods in which efficient policies can be sustained.
Keywords: game-theoretic model; public policy; developing country; government revenue; crowding out; foreign aid; (follow links to similar papers)
JEL-Codes: O10; O19; O20; (follow links to similar papers)
32 pages, November 3, 1997
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- This paper is published as:
Svensson, Jakob, (2000), 'Foreign aid and rent-seeking', Journal of International Economics, Vol. 51, No. 2, pages 437-461
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