Public education and health expenditure are staff estimates from the IMF’s Fiscal Affairs Department (FAD) and are available for the period prior to 2003.<sup>14</sup> The data are obtained from IMF country documents and have been verified and reconciled by country economists (Baqir, 2002). The main advantage over other datasets (International Monetary Fund, 2006; World Bank, 2006a,c) is the significantly improved coverage. Moreover, although the level of government (central or general, in which the latter also includes state and local government) spending differs across countries, it is fixed over time. Thus, average differences in government expenditure shares in GDP between countries that result from differences in the government level on which reporting is based can be absorbed by fixed effects (Baqir, 2002).<sup>15</sup>

**_A_** _it_ includes commodity aid/general program assistance (henceforth called general aid) and support to NGOs. If targeted toward education and health, support to NGOs may have an effect on a recipient government’s spending in these sectors (Lu, Schneider, Gubbins, Leach-Kemon, Jamison, and Murray, 2010, find that health aid to NGOs increases the health spending of recipient governments from their own resources). General aid may partially finance education and health spending or, if linked to structural adjustment programs, may be conditional on lowering public spending. The final variable in **_A_** _it_ is other non-education or non-health aid. In the equation for public education spending, other non-education aid includes health aid, and vice versa.

Another aid variable, action relating to debt, is not included in the regression model. Debt relief may be important, but it is not adequately captured by actions relating to debt, including debt forgiveness, debt rescheduling, and other actions (such as service payments to third parties, debt conversions, and debt buybacks) (OECD, 2000b). The debt forgiveness component measures the face value of total debt that is forgiven in a year rather than its present value (PV). Because the average concessionality of debt varies strongly across countries, this may be misleading (Depetris Chauvin and Kraay, 2005). For most types of debt rescheduling, the reduction in debt service in a given year as a result of present and past rescheduling is recorded. Again, this fails to capture the PV of current and future reductions in debt service as a result of debt rescheduling in the current year.<sup>16</sup> For these reasons, I omit action relating to debt as a regressor and instead control for the PV of public and publicly guaranteed long-term external debt as well as public and publicly guaranteed long-term external debt service. These variables should capture most of the effects of debt relief on social spending. Less debt service means that more resources are available to spend on other purposes, whereas a lower stock of debt means that the intertemporal budget constraint is loosened, which may increase the government’s appetite for spending. The PV of debt is obtained from Dikhanov (2004), which is updated through 2004.<sup>17</sup> The source for debt service is the Global Development Finance database (World Bank, 2006b). Again, I use current US$ GDP from World Bank (2006c) to express both variables as percentages of GDP.

Other control variables that are included in **_X_** _it_ are real GDP per capita (thousands of constant 2000 international dollars) and its growth rate, urbanization (urban population, % of total) and trade (% of GDP) (all 10