FOREIGN-AID, TAXES AND PUBLIC-INVESTMENT - A FURTHER COMMENT

The paper in this journal by Gang and Khan (1991) employed Heller's (1975) fiscal response model to demonstrate that aid to India has all been used to finance government investment. This conclusion is shown to be a misinterpretation of the model's results - which actually suggest that aid has had no impact on government investment at all. However, the reported parameters are determined by the estimation procedure adopted by Gang and Khan and not by the Indian government's fiscal behaviour.