This paper explores the role of fiscal transparency in affecting budget credibility and reliability, paying particular attention to its effect on budget execution and on the quality of macroeconomic assumptions upon which the budget is based. Using a Principal-Agent approach we argue that fiscal transparency reduces the agent’s informational advantage and constrains the agent to execute the contract (Enacted Budget) on behalf of the principal (Voters/Parliament) as intended. An Ordered Logit model is used to test this hypothesis and our findings support that fiscal transparency increases the likelihood of having a credible and reliable budget: improved transparency is associated with higher budget execution rates in the health and the education sectors, and better projections of GDP growth and inflation. These results are robust to a range of econometric specifications, especially after controlling for the potential endogeneity of fiscal transparency.
Budget transparency has come to be considered a key aspect of governance. Over the past decade, donors have invested increasing resources in strengthening processes through which budget transparency in developing countries can be enhanced. According to the 2008 Open Budget Index (OBI) Report, however, aid dependency and budget transparency appear to be inversely correlated. This article looks at the role of donor agencies in promoting or preventing budget transparency in aid dependent countries. It analyzes data for a sample of 16 aid-dependent countries included in the OBI, to test some preliminary hypotheses and select six countries for which more detailed findings are then presented. All of these countries have implemented reforms aimed at enhancing budget transparency, with substantial donor support. These, however, often had only limited success, partly because they were not well adapted to the local context, and partly because donors put limited emphasis on improving public access to budget information. Donor efforts were also often offset by other characteristics of donor interventions, namely their fragmentation, lack of transparency, and limited use of program aid modalities such as budget support and pooled sector funding.
The aim of this paper is to explore the relationship between the quality of the budget process and human development outcomes. It looks in particular at at the relationship between the OBI and human development as measured by the Human Development Index (HDI) and a number of related human development indicators, as well as the Economic and Social Rights Fulfillment Index that measures government commitment to economic and social rights.
Empirical evidence on the beneficial effects of fiscal transparency ranges from improved budgetary outcomes, to lower sovereign borrowing costs and decreased corruption. Despite this, hardly any effort has been invested in exploring the determinants of fiscal transparency. Using a new 85-country dataset, we focus on two important sources of domestic demand for open budgeting: citizens and legislators. Our results suggest that free and fair elections have a significant direct effect on budgetary disclosure, and that they dampen the adverse effect on fiscal transparency of dependence on natural resource revenues. We also find that partisan fragmentation in the legislature is associated with higher levels of budgetary disclosure.
How does a country’s mineral wealth affect the transparency of the government’s budget? Among democracies, a country’s mineral wealth is not convincingly related to the transparency of its government. But among autocracies, greater oil wealth is correlated with less fiscal transparency, while greater non-fuel mineral wealth is paradoxically associated with greater transparency. Explaining this pattern is a challenge: there is no prima facie evidence that it is driven by either membership in the Extractive Industries Transparency Initiative, or by the need to attract foreign investment. There is some evidence that among autocracies, oil reduces transparency because it helps dictators stay in power.