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Market Distortions And Government Transparency

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  • Facundo Albornoz
  • Joan Esteban
  • Paolo Vanin

Abstract

In this paper, we investigate how government transparency depends on economic distortions. We first consider an abstract class of economies in which a benevolent policy maker is privately informed about the exogenous state of the economy and contemplates whether to release this information. Our key result is that distortions limit communication: even if transparency is ex ante Pareto superior to opaqueness, it cannot constitute an equilibrium when distortions are sufficiently high. We next confirm this broad insight in two applied contexts, in which monopoly power and income taxes are the specific sources of distortions.

Suggested Citation

  • Facundo Albornoz & Joan Esteban & Paolo Vanin, 2014. "Market Distortions And Government Transparency," Journal of the European Economic Association, European Economic Association, vol. 12(1), pages 200-222, February.
  • Handle: RePEc:bla:jeurec:v:12:y:2014:i:1:p:200-222
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    File URL: http://hdl.handle.net/10.1111/jeea.12052
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    Cited by:

    1. Lundtofte, Frederik & Leoni, Patrick, 2014. "Growth forecasts, belief manipulation and capital markets," European Economic Review, Elsevier, vol. 70(C), pages 108-125.
    2. Forssbaeck, Jens & Oxel, Lars, 2014. "The Multi-Faceted Concept of Transparency," Working Paper Series 1013, Research Institute of Industrial Economics.

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