Forskning ved Københavns Universitet - Københavns Universitet

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Fiscal transparency, political parties, and debt in OECD countries

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Many believe and argue that fiscal, or budgetary, transparency has large, positive effects on fiscal performance. However, the evidence linking transparency and fiscal policy outcomes is less compelling. To analyze the effects of fiscal transparency on public debt accumulation, we present a career-concerns model with political parties. This allows us to integrate as implications of a single model three hitherto-separate results in the literature on deficit and debt accumulation: that transparency decreases debt accumulation (at least by reducing an electoral cycle in deficits), that right-wing governments (at least for strategic reasons) tend to have higher deficits than left-wing governments, and that increasing political polarization increases debt accumulation. To test the predictions of the model, we construct a replicable index of fiscal transparency on 19-country OECD data. Simultaneous estimates of debt and transparency strongly confirm that a higher degree of fiscal transparency is associated with lower public debt and deficits, independent of controls for explanatory variables from other approaches
OriginalsprogEngelsk
TidsskriftEuropean Economic Review
Vol/bind50
Udgave nummer6
Sider (fra-til)1403-1439
ISSN0014-2921
DOI
StatusUdgivet - 2006

Bibliografisk note

JEL Classification: D72, E62, H63

ID: 313165