Japanese Foreign Aid, Development Expenditures and Taxation in Thailand 1960-2012:Econometric Results from a Bounded Rationality Model of Fiscal Behavior

How does Japanese aid influence the allocation of government expenditures and the raising of government revenues? Using a non-linear model with an asymmetric loss function the case of Japanese aid to Thailand is examined at the macroeconomic level with a large time-series data set for 1960-2012. It turns out that Japanese aid led to proportionately more development expenditures than did other aid. It also might have been positively related to an increased effort by the Thai government to raise taxes. Economic explanations based on a set of bounded rationality model are advanced. Econometric and institutional explanations are also offered. The three sets of explanations can be seen as overlapping and complementary in this case