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Wiley InterScience | |||
  The Economic JournalVolume 117 Issue 523, Pages 1260 - 1279 Published Online: 21 Sep 2007 Journal compilation © 2010 by the Royal Economic Society (Registered Charity No. 231508) Published on behalf of the Royal Economic Society
Abstract | References | Full Text: HTML, PDF (Size: 176K) | Related Articles | Citation Tracking  Budget Support Versus Project Aid: A Theoretical Appraisal* * We are grateful to Craig Burnside, Susan Collins, Ana Paula Fialho Lopes, Roberta Gatti, Norman Loayza, Domenico Lombardi, Humberto Lopez, Paolo Mauro, Gian Maria Milesi Ferretti, Ashoka Mody, Rodney Ramcharan, Alessandro Rebucci, Roberto Rigobon, Ratna Sahay, Philip Schellekens, Peter Wickham, Jeromin Zettelmeyer, two anomynous referee and the editor of this Journal, as well as seminar participants at the IMF Annual Research Conference, the World Bank, the European Meeting of the Econometric Society, the Lacea and Lacea-PEG meetings for useful comments and suggestions on earlier drafts. This article should not be reported as representing the views of the IMF. The views expressed are those of the author and do not necessarily reflect the views of the institutions they are affiliated with. Copyright International Monetary Fund. Journal compilation Royal Economic Society 2007 ABSTRACTShould donors interested in the effectiveness of developmental programmes rely on conditional budget support or on project aid? To answer this question, we present a model in which only a subset of developmental expenditures can be subject to conditionality. We show that budget support is preferable to project aid when the preferences of donors and recipients are aligned, and when assistance is small relative to the recipients' own resources. Furthermore, when donors cannot observe the recipient's type, they may impose higher levels of conditionality to separate committed governments from uncommitted ones. Submitted: 8 March 2005 Accepted: 19 July 2006 | 
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