Budget Transparency and Fiscal Performance: Do Open Budgets Matter?

Existing published research into the relationship between budget transparency and fiscal performance confirms the expectations that higher budget transparency is associated with smaller budget deficits and lower public debt. However, our previous research did not bring such clear results but raised a fundamental question: Why should greater transparency improve fiscal performance? The objective of this paper is to re-evaluate the relationship between budget transparency and fiscal performance. Based on the literature review we have identified three channels through which increased transparency may limit excessive public expenditure resulting in budget deficit and public debt: (1) reduced fiscal illusion, (2) decreased information asymmetry between politicians and voters which may improve accountability and increase political competition, and (3) strengthening in the enforcement of fiscal rules. The results of statistical analysis (conditional means analysis for 2008, correlation and regression analysis for 2003 to 2009) did not prove a significant negative relationship between budget transparency, measured by the Open Budget Index, and budget deficit or public debt. We found a negative and statistically significant relationship between corruption and budget transparency.