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Transparency and Economic Policy

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Author Info
ALESSANDRO GAVAZZA
ALESSANDRO LIZZERI

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Abstract

We provide a two period model of political competition in which voters imperfectly observe the electoral promises made to other voters. Imperfect observability generates an incentive for candidates to offer excessive transfers even if voters are homogeneous and taxation is distortionary. Government spending is larger than in a world of perfect observability. Transfers are partly financed through government debt, and the size of the debt is higher in less transparent political systems. The model provides an explanation of fiscal churning; it also predicts that groups whose transfers are less visible to others receive higher transfers, and that imperfect transparency of transfers may lead to underprovision of public goods. From the policy perspective, the main novelty of our analysis is a separate evaluation of the transparency of spending and the transparency of revenues. We show that the transparency of the political system does not unambiguously improve efficiency: transparency of spending is beneficial, but transparency of revenues can be counterproductive because it endogenously leads to increased wasteful spending. Copyright Copyright © 2009 The Review of Economic Studies Limited.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-937X.2009.00547.x
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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 76 (2009)
Issue (Month): 3 (07)
Pages: 1023-1048
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Handle: RePEc:bla:restud:v:76:y:2009:i:3:p:1023-1048

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527

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  1. James E. Alt & David Dreyer Lassen & Shanna Rose, 2006. "The Causes of Fiscal Transparency: Evidence from the American States," EPRU Working Paper Series 06-02, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  2. Andrea Mattozzi & Antonio Merlo, 2005. "Political Careers or Career Politicians?," PIER Working Paper Archive 05-032, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Dec 2005. [Downloadable!]
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  3. Gerard Padro i Miquel, 2006. "The Control of Politicians in Divided Societies: The Politics of Fear," NBER Working Papers 12573, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Andrea Mattozzi & Antonio Merlo, 2007. "The Transparency of Politics and the Quality of Politicians," PIER Working Paper Archive 07-008, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
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This page was last updated on 2009-11-22.

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