Aid is a distribution matter and
primarily involves a resource transfer, mostly a flow of money from richer
to poorer countries. Basically, it is guided by an equity rationale and is
meant to help the poor.
Providing global public goods is
mainly an allocation issue. The challenge in this case is to motivate
actors to undertake certain policy actions in the general interest. For
example, international financial stability matters not only to the people
in developing countries who want to guard against external shocks, but
also to people in industrial countries who want to protect their savings
and investments.
A range of public finance tools can
be employed in the production of global public goods. These include
nonfinancial instruments such as regulation or assignment of property
rights and financial instruments such as taxes, fines, subsidies, user
fees and charges, and direct spending by state entities on services they
provide through government agencies or private contractors. Global public
goods financing is primarily guided by an efficiency rationale. (But, as
elaborated below in point 18, efficiency considerations must in some
instances be tempered by fairness considerations.)
Differences between aid and
financing for global public goods
