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[Gang, I.][Khan, H.]

Gang, I. N. and H. Khan (1986). "Foreign Aid and Public Expenditures in LDC's." Atlantic Economic Journal 14(3): 56.
A simple theoretical model is developed that is useful for determining the effects of aid on public consumption and public investment in less developed countries (LDC). The model builds on the research of Heller (1974, 1975) in which he estimates the effects of recurrent cost constraints on development programs. It distinguishes between 3 types of public expenditures and 2 categories of financing. It is assumed that policymakers in LDCs maximize a well-defined utility function consisting of public policy objectives subject to financing constraints. The 3 expenditures categories are: 1. public investment expenditure, 2. civil consumption by the government, and 3. socioeconomic consumption by the government. Public expenditure is financed by internal or external means. The comparative static results bring out the links between the different expenditure and revenue categories. The model has ready application to empirical research.