The effect of fiscal transparency on government spending efficiency

Abstract

Purpose Making citizens able to monitor and evaluate public spending activities is a fundamental issue in public financial management literature. The purpose of this paper is to analyze whether fiscal transparency, measured by the Open Budget Index, has an effect on public spending performance, measured by the World Economic Forum’s Global Competitiveness Report data. Design/methodology/approach Research methods rely on random-effects panel regression models on a country-level panel data set of 82 world countries observed in the 2008–2015 time interval. Findings Results show that the potential positive effects of fiscal transparency are mediated by the level of democracy of the country. In detail, in democratic countries, a higher degree of disclosure of fiscal information is correlated with a higher efficiency of government spending while, in non-democratic countries, fiscal transparency does not seem to provide any effect. Social implications The results suggest that fiscal transparency can be a powerful device where politicians can be held accountable for their actions, while it could fail to provide positive results where a strong and effective vertical accountability is missing. Originality/value The novelty of the paper is twofold. First, it provides new additional evidence about the positive effect that fiscal transparency has on public spending efficiency by advancing previous research on this topic (Porumbescu, 2017; Montes et al., 2019). Second, the paper investigates conceptually and empirically how the positive effect on public spending efficiency determined by fiscal transparency depends on the degree of democracy present in the institutional environment in which fiscal information disclosure is implemented.

Government spending and economic growth in the Middle East and North Africa region

“…In addition, there are other unexpected factors that are difficult to predict (e.g. the 2020 coronavirus pandemic) (De Simone et al., 2019; Marek et al., 2020; Pierre and Peters, 2019).…”

The Impact of Fiscal Openness on Public Spending Technical Efficiency in Developing Countries

“…Chen and Neshkova (2020), we use the democracy index developed by the Economist Intelligence Unit, which is a composite indicator assessing the electoral process, civil liberties, the functioning of government, political participation, and political culture. The level of democracy affects politicians' incentives to change their behavior because lower democracy levels mean a lower probability of being sanctioned for misconduct, and hence lower accountability (De Simone et al, 2019). Moreover, the rule of law is an accountability mechanism that is believed to affect both politicians' and bureaucrats' incentives to engage in corrupt behavior, and citizens' willingness to use fiscal information and participate in budgetary stages (Chen & Ganapati, 2021).…”

“…Moreover, a non-linear analysis helps to better represent the relationship between fiscal transparency and PSTE in the theoretical literature. Only two studies utilized cross-country data to empirically test the effect of fiscal transparency on PSTE, which are the studies by Montes et al (2019) andDe Simone et al (2019). The former study used a linear form of fiscal transparency and found that higher fiscal transparency has a positive linear effect on DEA PSTE scores.…”

“…De Simone et al (2019) argue that the risk of presence of an endogeneity problem is low because fiscal transparency changes at a slow pace. Therefore, it is more logical to believe that fiscal transparency affects the politicians' and bureaucrats' behavior by encouraging them to spend more efficiently, and not the reverse.…”

Corruption, lack of Transparency and the Misuse of Public Funds in Times of Crisis: An introduction

“…Carrying out exceptional government expenditures without releasing adequately open and accessible information about them implies a weaker system of checks and balances that reveals "system vulnerabilities" (Heald & Hodges, 2020) and exposes to the risk of corruptive practices (De Simone et al, 2017) or misuse of public funds (De Simone et al, 2019). Indeed, experts highlight that many of the government expenditures made during the Covid-19 crisis experienced this risk (International Budget Partnership, 2021).…”