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Transparency and Economic Policy

Author

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  • Alessandro Gavazza
  • Alessandro Lizzeri

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 , Wiley-Blackwell.

Suggested Citation

  • Alessandro Gavazza & Alessandro Lizzeri, 2009. "Transparency and Economic Policy," Review of Economic Studies, Oxford University Press, vol. 76(3), pages 1023-1048.
  • Handle: RePEc:oup:restud:v:76:y:2009:i:3:p:1023-1048
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    File URL: http://hdl.handle.net/10.1111/j.1467-937X.2009.00547.x
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    References listed on IDEAS

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    1. Alessia Matano & Paolo Naticchioni, 2009. "Wage distribution and the spatial sorting of workers and firms," Working Papers - Dipartimento di Economia 8-DEISFOL, Dipartimento di Economia, Sapienza University of Rome, revised 2009.
    2. Gabriel M. Ahlfeldt & Stephen J. Redding & Daniel M. Sturm & Nikolaus Wolf, 2015. "The Economics of Density: Evidence From the Berlin Wall," Econometrica, Econometric Society, vol. 83, pages 2127-2189, November.
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    Cited by:

    1. repec:oxf:wpaper:747 is not listed on IDEAS
    2. Pierre Cahuc & Stéphane Carcillo, 2012. "Can Public Sector Wage Bills Be Reduced?," NBER Chapters,in: Fiscal Policy after the Financial Crisis, pages 359-402 National Bureau of Economic Research, Inc.
    3. Mattozzi, Andrea & Merlo, Antonio, 2008. "Political careers or career politicians?," Journal of Public Economics, Elsevier, pages 597-608.
    4. Tito Boeri & Guido Tabellini, 2012. "Does information increase political support for pension reform?," Public Choice, Springer, vol. 150(1), pages 327-362, January.
    5. Jon X. Eguia & Aniol Llorente-Saguer & Rebecca Morton & Antonio Nicol�, 2014. "Equilibrium Selection in Sequential Games with Imperfect Information," Working Papers 717, Queen Mary University of London, School of Economics and Finance.
    6. Giacomo A. M. Ponzetto & Edward L. Glaeser, 2017. "The political economy of transportation investment," Economics Working Papers 1556, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2017.
    7. Bag, Parimal Kanti & Pepito, Nona, 2011. "Double-edged transparency in teams," Journal of Public Economics, Elsevier, vol. 95(7), pages 531-542.
    8. Gavazza, Alessandro & Nardotto, Mattia & Valletti, Tommaso, 2015. "Internet and Politics: Evidence from U.K. Local Elections and Local Government Policies," CEPR Discussion Papers 10991, C.E.P.R. Discussion Papers.
    9. repec:eee:macchp:v2-2599 is not listed on IDEAS
    10. 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.
    11. Zheng Song & Kjetil Storesletten & Fabrizio Zilibotti, 2012. "Rotten Parents and Disciplined Children: A Politico‐Economic Theory of Public Expenditure and Debt," Econometrica, Econometric Society, vol. 80(6), pages 2785-2803, November.
    12. Andrea Mattozzi & Antonio Merlo, 2007. "The Transparency of Politics and the Quality of Politicians," American Economic Review, American Economic Association, pages 311-315.
    13. Facundo Albornoz & Joan-Maria Esteban & Paolo Vanin, 2009. "Government Information Transparency," Working Papers 392, Barcelona Graduate School of Economics.
    14. Alberto Alesina & Andrea Passalacqua, 2015. "The Political Economy of Government Debt," NBER Working Papers 21821, National Bureau of Economic Research, Inc.
    15. Daniel Albalate del Sol, 2013. "The institutional, economic and social determinants of local government transparency," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 16(1), pages 90-107, March.
    16. 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.
    17. Williams, Andrew, 2015. "A global index of information transparency and accountability," Journal of Comparative Economics, Elsevier, vol. 43(3), pages 804-824.
    18. Matejka, Filip & Tabellini, Guido, 2015. "Electoral Competition with Rationally Inattentive Voters," CEPR Discussion Papers 10888, C.E.P.R. Discussion Papers.
    19. Bueno de Mesquita, Ethan & Landa, Dimitri, 2015. "Political accountability and sequential policymaking," Journal of Public Economics, Elsevier, vol. 132(C), pages 95-108.
    20. Wataru Tamura, 2012. "A Theory of Multidimensional Information Disclosure," ISER Discussion Paper 0828, Institute of Social and Economic Research, Osaka University.
    21. repec:gam:jsusta:v:9:y:2017:i:4:p:631-:d:96011 is not listed on IDEAS
    22. Maria Carmela Ceparano & Jacqueline Morgan, 2015. "Equilibria Under Passive Beliefs for Multi-leader-follower Games with Vertical Information: Existence Results," CSEF Working Papers 417, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 09 Jan 2017.

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