Fiscal Transparency and Fiscal Policy Outcomes in OECD Countries

Abstract

It is widely believed and often argued that budget process transparency has large, positive effects on fiscal performance. However, the evidence linking transparency and fiscal policy outcomes is far from compelling. We modify the "debt as precommitment" model of Alesina and Tabellini (1990) by allowing for budget inertia and reputational costs. These modest changes produce an equilibrium level of debt that decreases as both the probability of a change in office and the degree of transparency increase. Simultaneous estimates of debt and transparency on 19-country OECD data are consistent with these conjectures, and support the finding that transparency and political competition are substitutes.