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The impact of fiscal opacity on business confidence: empirical investigation from an emerging economy

Author

Listed:
  • Helder Ferreira de Mendonça
  • Luciano Vereda Oliveira
  • Matheus Ignacio Santos Dias

Abstract

Purpose - The relevance of transparency related to public finances is considered fundamental for good economic policy management. An environment of greater fiscal transparency allows the private sector greater predictability, improving the entrepreneur’s decision-making ability. This study empirically analyzes fiscal opacity’s effect on business confidence in an emerging economy. Design/methodology/approach - We use monthly data from the Brazilian economy from January 2010 to March 2023. Based on Ordinary Least Squares (OLS) and the Generalized Method of Moments (GMM) regressions, we analyze whether fiscal opacity, measured by the signal-to-noise ratio, affects business confidence. Moreover, to evaluate the duration of a shock transmitted by the fiscal opacity on business confidence, we consider an impulse-response function generated by a Vector Auto-Regressive (VAR). Findings - We found that fiscal opacity resulting from the lack of information to anticipate the budgetary result of the public sector deteriorates business confidence. Practical implications - We present robust empirical evidence that allows us to assume that using a strategy to reduce fiscal opacity through mechanisms that provide reliable economic data and fiscal forecasts is essential for fiscal policy to affect business confidence positively. Reducing fiscal opacity provides greater clarity regarding the budget outcome, reduces economic uncertainty and improves the fiscal policy expectation channel. Originality/value - This paper is the first to analyze how the lack of information for market agents to anticipate the government’s budget execution accurately (fiscal opacity) affects business confidence.

Suggested Citation

  • Helder Ferreira de Mendonça & Luciano Vereda Oliveira & Matheus Ignacio Santos Dias, 2024. "The impact of fiscal opacity on business confidence: empirical investigation from an emerging economy," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 52(2), pages 430-446, June.
    • Handle: RePEc:eme:jespps:jes-01-2024-0007
    DOI: 10.1108/JES-01-2024-0007
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal opacity; Business confidence; Emerging economy; E61; H68; M21;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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