in off-budget aid over time. In Fiji and Vanuatu, 70% of all aid is off-budget aid (Feeny, 2007). In Malawi, approximately 40% is off-budget aid (Fagern ̈as and Schurich, 2004), and in Liberia, approximately 75% is off-budget aid (Republic of Liberia Ministry of Finance, 2009).

6For example, suppose that in the absence of any health aid, a recipient government spends 100 million dollars in the health sector. If a donor provides 200 million dollars of off-budget health aid, then full fungibility would entail that the recipient government reduces its own health expenditures at an approximately one-to-one rate (i.e., the recipient government reduces its health expenditure by 200 million dollars). However, the government cannot implement such a reduction because health expenditure would need to decrease below zero. The most that this government can do is to reduce its health expenditure by 100 million dollars; in this situation, health aid is only partially fungible.

7Many of the papers in this body of literature disaggregate aid into grants and loans, multilateral and bilateral aid, or by aid modality, but not by sector.

> 8The studies that are referenced in this paragraph estimate the degree of fungibility using panel data for either a large (Feyzioglu et al., 1998; Devarajan et al., 2007) or small (Heller, 1975; Feeny, 2007) number of countries, or they report country-specific estimates of fungibility (all other studies referenced in this paragraph).

> 9I describe the OECD’s aid databases as they were when I began to construct the sectoral aid data (December 2006). Since then, the CRS and DAC Directives have been updated, and the databases have undergone minor changes (see OECD, 2007a,b).

10 _RY_ denotes recipient-year, _agg_ denotes aggregate aid, and _comm_ denotes commitments. No superscript is used for disbursements. 11The data in DAC5 are a mix of disbursements and commitments. To account for this, I scale the DAC5 data to ensure that the sum of the sectoral aid variables matches the aggregate disbursements from DAC2a for every donor-year.

> 12Since the construction of the data for this paper, two new disaggregated aid datasets have become available. Ravishankar, Gubbins, Cooley, Leach-Kemon, Michaud, Jamison, and Murray (2009) construct data on health aid by estimating disbursements on the basis of the less incomplete CRS commitments and by adding data from separate reports for a number of NGOs and multilateral and private donors. These data are used by Lu et al. (2010) to estimate the fungibility of health aid. One disadvantage is that a large portion of the data cannot be allocated by recipient country. Lu et al. (2010, p. 1379) state that only 21% of all health aid in 1995 can be traced to recipient countries, and 30% of this aid can be traced to recipient countries in 2006. In addition, it is not immediately clear how one would further divide health aid into on- and off-budget components in these data. A second recent dataset, AidData (http: //www.aiddata.org), attempts to construct a more complete disaggregation of aggregate aid into all of its constituent parts according to a number of dimensions but focuses almost exclusively on commitments.

13Current US$ GDP from World Bank (2006c) is used to express sectoral aid disbursements as a percentage of the GDP.

> 14These data are not publicly available, although they have been used in a variety of publications (e.g., Gupta, Clements, and Tiongson, 1998; Baqir, 2002). I am grateful to Gerd Schwartz for sharing these data and to Ali Abbas for assistance in obtaining them.

> 15For Fiji, the observation in 1998 for both sectors is approximately ten times smaller than that in the surrounding years, most likely due to a typographical error. For instance, public education expenditures account for 0.572% of the GDP in 1998, whereas these expenditures range from 5.19% to 6.37% of the GDP in all other years from 1993 to 2002. Hence, I change this value to 5.72. Similarly, I adjust the public health expenditure value for 1998 from 0.253% to 2.53% of GDP.

16Only for Paris Club concessional debt reorganizations is the net present value reduction in debt achieved by the current rescheduling recorded (OECD, 2000b, p. 17).

17I am grateful to Ibrahim Levent for sending me the updated data (received December 2006) and the Dikhanov paper.

18Mokoro (2008) expressly warns against the assumption that aid projects are always off-budget (p. 7) but suggests that the degree to which these projects are captured in budgets is low. (See, e.g., p. 23: “levels of aid on budget are strongly driven by budget support aid (which, by definition, is on budget). In many cases, off budget proportions for other aid modalities still remain very high” and p.

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