How Do Different Forms of Foreign Aid Affect Government Legitimacy? Evidence from an Informational Experiment in Uganda

Local public goods and social services are delivered through a variety of funding and implementing channels in aid-dependent countries. Existing research proposes that international aid to governments undermines government legitimacy and the fiscal contract between citizens and their rulers. We outline how the implications of fiscal contract theory differ depending on whether aid takes the form of donors funding projects through the government, donors funding projects through NGOs, or the government outsourcing project implementation to NGOs. We test these predictions using an informational experiment among N = 2446 Ugandan adults in 18 communities with foreign-funded, NGO-implemented projects. We randomize the amount of information that we provide about these projects. Our results suggest that donor-to-government funding has limited effects on citizens' opinions about their government. Only bypass aid (i.e., donor aid to NGOs) undermines citizens' assessments of government performance, while only NGO implementation reduces the willingness of citizens to pay fees to the government or to donate to community funds. Government legitimacy, as measured by individuals' willingness to comply with government instructions, is very low to begin with and is not influenced by information about different forms of aid.