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

Abstract

This study examines the impact of fiscal openness, defined as fiscal transparency and public participation in budget processes, on public spending technical efficiency in developing countries. Fiscal openness is expected to improve public spending technical efficiency by curbing political and bureaucratic corruption. However, beyond a certain limit, more fiscal openness may undermine public spending technical efficiency because of the excessive administrative costs and politicization of public spending decisions that lead to a throwing money effect. We combine a data envelopment analysis and regression analysis to calculate the efficiency scores in developing countries and test the hypothesis of an inverted U-shaped relationship between fiscal openness and public spending technical efficiency. Our results support the existence of an inverted-U relationship between the fiscal transparency aspect of fiscal openness and the public spending technical efficiency in developing countries, whereas the effect of public participation is found to be statistically insignificant.