Econometric analysis of the fiscal behavior of the public sector in developing countries : aid, investment, and taxation

A large share of the capital inflow from donor nations and private investors has been absorbed directly into and expended from the budget of the public sector. Most LDC"s have increased the rate at which they mobilize domestic resources through taxation. In recent years, however, the importance of these government activities in the development process has been enveloped in controversy. In this paper, the author examines these issues by developing a cross-section time-series econometric model of the public sector of eleven African countries. In Section II, the theoretical model of public sector behavior which underlies the statistical analysis is developed. In Section III, the sources and concepts underlying the measurement of each variable are outlined. In part A of Section IV, there is a short discussion of the estimation procedure and the econometric problems that arise from the cross-section time-series character of the data. In part B, the statistical results are examined, and in Section V, they are evaluated for their policy and behavioral implications.