This paper analyses political factors within European donor countries that have influenced the provision of Budget Support, one of the most prominent and controversial aid instruments. In general, budget support aims at financing poverty reduction policies of the recipient through transferring financial resources directly to the recipient's government budget. Moreover, through tying these aid flows to policy and political conditionality, donor countries also expect a leverage effect on institutional reforms.
As agreed by aid experts, this conditionality and the resulting disbursement strategy needs strong coordination if not harmonization among donors in order to provide a coherent and credible incentive scheme for recipients. Unfortunately, recent qualitative evidence shows that European donor governments have often failed to coordinate their budget support policies in a sufficient manner.
Against this background, we provide systematic evidence, that one of the reasons behind the malfunctioning coordination consists in the fact that the provision of Budget Support is driven by political considerations of donor governments. We argue that in conservative donor governments are comparatively more critical towards the instrument of budget support and more likely to sanction a violation of conditionality. This easily causes coordination challenges among donor agencies in recipient countries regarding a coordinated use of disbursements and the use of conditionality. We provide econometric evidence for the 2001-2012 period that more conservative governments in Europe were less likely to disburse Budget Support. Moreover, we illustrate the causal chain of our arguments as well as the consequences for donor coordination by providing a comparison between German and British budget support policies over the same period.
