Essays on Financing for Development

Kaisa Alavuotunki

Research output: ThesisDoctoral ThesisCollection of Articles


This thesis consists of four essays on development financing: the three first ones examine allocation and impact of general budget support (GBS) and the fourth essay analyses the consequences of value added tax (VAT) on inequality. The first essay studies general budget support as an aid instrument in a cross-country setting. The paper examines if changes in aid allocation patterns can be identified since the introduction of GBS, what the characteristics of countries receiving the modality are, and if any growth impacts can be identified due to the use of GBS. The results indicate that there is a clear change in aggregate aid allocations between the late 1990s and 2000s. The importance of recipient needs has increased while donor commercial interests have decreased. Compared to other aid, GBS is allocated to poorer countries with a history of high indebtedness, stronger recipient merits and stronger political ties with donors. The results suggest that receiving GBS has accelerated economic growth when controlling for the selection bias.The second and third essays study the impact of GBS on recipient government budget allocation. The essays employ a supply-side instrument approach and a synthetic control approach to identify the causal effects of GBS. The results suggest that countries receiving GBS tend to allocate more on health sector. Further, the effect of GBS on health spending is quite heterogeneous suggesting that donor and recipient priorities might not always be aligned even amongst the top GBS receiving countries. However, in the countries where GBS did have a positive effect on health spending, neonatal mortality rate declined faster than it would otherwise have declined. GBS disbursements have also increased spending on education thus enabling governments to undertake larger reforms.The fourth essay studies the consequences of introduction of the VAT on inequality. The adoption of the VAT has arguably been one of the most important tax policy measures worldwide, but also one of the most heatedly debated. While some argue that the VAT has served as a useful tool to boost government revenue, others claim that it is also a regressive tax, contributing to increased inequality. This paper offers updated estimates of the revenue impacts of the VAT and the first estimates of its consequences on inequality at the macro level. The results indicate fairly strongly that when inequality is measured on the basis of disposable income, VAT adoption has led to increased inequality, but inequality measured using consumption has not increased due to VAT adoption. The results also reveal that the revenue consequences of the VAT have not been positive, contrasting results from earlier, influential, work in the area.
Translated title of the contributionEssays on Financing for Development
Original languageEnglish
QualificationDoctor's degree
Awarding Institution
  • Aalto University
  • Haaparanta, Pertti, Thesis Advisor
Print ISBNs978-952-60-6911-1
Electronic ISBNs978-952-60-6910-4
Publication statusPublished - 2016
MoE publication typeG5 Doctoral dissertation (article)


  • general budget support
  • government expenditure allocation
  • neonatal mortality
  • aid allocation
  • aid impact
  • value-added tax
  • inequality
  • developing countries


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