Fiscal Transparency and Fiscal Policy Outcomes in Oecd Countries

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. Paper prepared for presentation at the 2001 Annual Meeting of the American Political Science Association, San Francisco, CA, August 30-September 2. This is a draft and should not be quoted without the permission of the authors. Draft dated: August 20, 2001. Fiscal Transparency and Fiscal Policy Outcomes 1 FISCAL TRANSPARENCY AND FISCAL POLICY OUTCOMES IN OECD COUNTRIES James E. Alt, David Dreyer Lassen and David Skilling