TY - JOUR
T1 - Fiscal transparency, political parties, and debt in OECD countries
AU - Alt, James E.
AU - Lassen, David Dreyer
N1 - JEL Classification: D72, E62, H63
PY - 2006
Y1 - 2006
N2 - 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
AB - 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
KW - Faculty of Social Sciences
KW - fiscal transparency
KW - budgetary institutions
KW - government debt
KW - government deficits
KW - fiscal policy
U2 - 10.1016/j.euroecorev.2005.04.001
DO - 10.1016/j.euroecorev.2005.04.001
M3 - Journal article
SN - 0014-2921
VL - 50
SP - 1403
EP - 1439
JO - European Economic Review
JF - European Economic Review
IS - 6
ER -