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Budget transparency and fiscal performance: Do open budgets matter?

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  • Sedmihradská, Lucie
  • Haas, Jakub

Abstract

Existing published research of the relationship between budget transparency and fiscal performance confirms the expectations that higher budget transparency is associated with smaller budget deficits and lower public debt. However, our previous research did not bring such clear results and raised a fundamental question: Why should greater transparency improve fiscal performance? The objective of the proposed paper is to evaluate the relationship between budget transparency and fiscal performance. Based on the literature review we have identified three channels through which increased transparency may limit excessive public expenditures resulting in budget deficit and public debt: (1) reduce fiscal illusion, (2) decrease information asymmetry between politicians and voters which may improve accountability and increase political competition, and (3) strengthen the enforcement of fiscal rules. The results of statistical analysis (conditional means analysis for 2008 and correlation and regression analysis for 2003 to 2009) did not prove any significant negative relationship between budget transparency, measured by the Open Budget Index, and budget deficit or public debt.

Suggested Citation

  • Sedmihradská, Lucie & Haas, Jakub, 2012. "Budget transparency and fiscal performance: Do open budgets matter?," MPRA Paper 42260, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:42260
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    References listed on IDEAS

    as
    1. Isabelle Joumard & Per Mathis Kongsrud & Young-Sook Nam & Robert Price, 2004. "Enhancing the Cost Effectiveness of Public Spending: Experience in OECD Countries," OECD Economic Studies, OECD Publishing, vol. 2003(2), pages 109-161.
    2. Dollery, Brian E & Worthington, Andrew C, 1996. " The Empirical Analysis of Fiscal Illusion," Journal of Economic Surveys, Wiley Blackwell, vol. 10(3), pages 261-297, September.
    3. Alt, James E. & Lassen, David Dreyer, 2006. "Fiscal transparency, political parties, and debt in OECD countries," European Economic Review, Elsevier, vol. 50(6), pages 1403-1439, August.
    4. International Monetary Fund, 2005. "Fiscal Transparency and Economic Outcomes," IMF Working Papers 05/225, International Monetary Fund.
    5. Rose, Shanna, 2010. "Institutions and Fiscal Sustainability," National Tax Journal, National Tax Association;National Tax Journal, vol. 63(4), pages 807-837, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    budget transparency; fiscal performance; Open Budget Index;

    JEL classification:

    • J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

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