it is difficult to estimate its specific importance. High dependence on aid is associated with medium levels of effective state-citizen engagement for two main reasons.

First, when using aid, governments are likely to be more responsive to donors than to citizens. In general, donors can strongly influence how their money is used so they allocate funds according to their own preferences and perceptions. Second, because aid allocation is often removed from the local legislative process, donors respond to the legislatures back home and not to the aid countries they seek to serve. According to Brautigam (2002: 15) “large amounts of aid can undermine the responsiveness of government to taxpayers, establishing relations of accountability between donors and governments, not between governments and citizens. Only when aid comes as a loan, and citizens understand that it must be repaid through their taxes, are the latter accountability links fostered.” This situation is aggravated by the high number of donor agencies that work without coordination, and whose aid is seldom channeled through local budgets (Box 3). Related to this, Moore (2001: 408) argues that “it has become increasingly difficult for anyone to know what money is being spent on, what by government, or by aid donors in the name of government. There is little accountability of any kind.” The degree to which local government administrators and representatives are empowered in aid assisted development is dependent on the specific terms of the project or intervention being supported. The same is true for citizens' capacity to make effective choices in relation to aid expenditures and actions.

# **_Box 3. Problems in a multi-actor context: The case of Nepal_**

Discussions with the staff of the Nawalparasi District Drinking Water Office in Nepal revealed that three donor-assisted projects were operating in the district. All three projects had similar mandates but they had different working modalities. While initiatives supported by the first two donor-assisted projects required contributions from the Village Development Committee (VDC) as well as from beneficiaries, those assisted by the third donor-assisted project required no such contribution from the VDC. Some VDCs that had agreed to work with the first two projects were later found to have switched to the third project in order to save VDC funds. The presence of multiple organizations with similar mandates but different working modalities not only created unhealthy competition in the district but also led to program uncertainty for the first two donor-assisted projects.

<u>Source: The World Bank (2004c).</u> Despite the fact that aid dependence may lead to low levels of empowerment and weak accountability within countries, donors often influence the governance of the recipient countries, and commonly demand accountability both to them and to their own citizens. They do so by imposing direct and indirect conditionalities on recipient countries. According to Gloppen and Rakner (2002: 38) “with aid increasingly being conditional and with tax reform part of the conditionality agenda, aid and taxation _may_ be positively related.” However, conditionality may impede trust and reciprocity between the state and its citizens. In many cases recipient countries focus on meeting conditions of the donors (i.e. reaching specific tax levels) rather than on responding to citizens’ preferences. Although conditionality may have negative impacts on state-citizen relations, at this point it is still unclear whether this is actually the case.

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