The Determinants of Local Government's Financial Transparency

Abstract This paper contributes to the scarce literature on government transparency by analysing the impact of political and socio-economic factors on municipal financial transparency. Our sample covers the 100 largest Spanish municipalities in 2008. Compulsory publicity and transparency are key to public management (rule-of-law theory). Our data show that Spanish municipalities are providing financial information beyond the legal requirements, thus exceeding the compulsory disclosures required by the rule-of-law theory. The more taxes and more transfers per capita, the more financial information is disclosed and, accordingly, the higher the transparency is. Therefore the municipalities are not taking advantage of fiscal illusion or principal–agent effects, since they are not concealing higher levels of taxes and transfers from citizens. Furthermore, left-wing parties are more transparent than right-wing ones. Finally, the population also has a positive effect on the achievement of financial transparency.

[1]  David Dreyer Lassen,et al.  Fiscal Transparency, Political Parties, and Debt in OECD Countries , 2003 .

[2]  M. Kent Jennings,et al.  Gender Roles and Inequalities in Political Participation: Results from an Eight-Nation Study , 1983 .

[3]  E. Zhuravskaya,et al.  Decentralization and Political Institutions , 2003 .

[4]  K. Andersen.  Working Women and Political Participation, 1952-1972 , 1975 .

[5]  Deirdre Curtin,et al.  Transparency and political participation in EU governance: A role for civil society? , 1999 .

[6]  Kathryn Gordon,et al.  DIRECTORATE FOR FINANCIAL, FISCAL AND ENTERPRISE AFFAIRS , 2001 .

[7]  Raymond J. Fisman,et al.  Decentralization and Corruption: Evidence Across Countries , 2000 .

[8]  F. Veiga,et al.  Political business cycles at the municipal level , 2004 .

[9]  Allen G. Schick,et al.  The Performing State: Reflection on an Idea Whose Time Has Come but Whose Implementation Has Not , 2003 .

[10]  Political and Economic Determinants of Budget Deficits in the Industrialdemocracies , 1988 .

[11]  A. Fozzard,et al.  Changing Approaches to Public Expenditure Management in Low-income Aid Dependent Countries , 2001 .

[12]  John E. Chubb.  The Political Economy of Federalism , 1985, American Political Science Review.

[13]  V. Tanzi.  Corruption Around the World : Causes, Consequences, Scope, and Cures , 1998 .

[14]  M. Paldam,et al.  FISCAL DISCIPLINE AND ASYMMETRIC ADJUSTMENT OF REVENUES AND EXPENDITURES : LOCAL GOVERNMENT RESPONSES TO SHOCKS IN DENMARK , 2004 .

[15]  Jørn Rattsø,et al.  Fiscal Discipline and Asymmetric Adjustment of Revenues and Expenditures: Local Government Responses to Shocks in Denmark , 2002 .

[16]  Franco Reviglio.  Budgetary Transparency for Public Expenditure Control , 2001, SSRN Electronic Journal.

[17]  Stefan Fölster.  Do Lower Taxes Stimulate Self-Employment? , 2002 .

[18]  David Dreyer Lassen,et al.  The Causes of Fiscal Transparency: Evidence from the U.S. States , 2006, IMF Staff Papers.

[19]  The Political Economy of Budget Deficits , 1994 .

[20]  Gregg G. Van Ryzin,et al.  Citizen Attitudes Toward Transparency in Local Government , 2007 .

[21]  S. Winer,et al.  Studying the role of political competition in the evolution of government size over long horizons , 2008 .

[22]  B. Heyndels,et al.  Fiscal illusion at the local level: Empirical evidence for the Flemish municipalities , 1994 .

[23]  Mario Marcel,et al.  Building a consensus for fiscal reform: The Chilean case , 2003 .

[24]  John Bradley,et al.  Participation and Political Equality: A Seven-Nation Comparison , 1980 .

[25]  Ernesto H. Stein,et al.  Institutional Arrangements and Fiscal Performance: The Latin American Experience , 1998 .

[26]  D. Lassen.  Political Accountability and the Size of Government: Theory and Cross-Country Evidence , 2000 .

[27]  W. Oates.  On the nature and measurement of fiscal illusion: a survey , 1988 .

[28]  V. Tanzi.  Corruption, governmental activities, and markets , 1994 .

[29]  Peter M. Mitias,et al.  Grant Illusion, Tax Illusion, and Local Government Spending , 2001 .

[30]  A. Matheson,et al.  Public Sector Modernisation: A New Agenda , 2003 .

[31]  Farhan Hameed.  Fiscal Transparency and Economic Outcomes , 2005, SSRN Electronic Journal.

[32]  J. L. Chan,et al.  Models of public budgeting and accounting reform , 2002 .

[33]  T. Hagen,et al.  Political characteristics, institutional procedures and fiscal performance: Panel data analyses of Norwegian local governments, 1991-1998 , 2005 .

[34]  J. Alt,et al.  The Political Budget Cycle is Where You Can't See it: Transparency and Fiscal Manipulation , 2005 .

[35]  A. Alesina,et al.  Budget Deficits and Budget Institutions , 1996, SSRN Electronic Journal.

[36]  J. Ferejohn.  Democracy, Accountability, and Representation: Accountability and Authority: Toward a Theory of Political Accountability , 1999 .

[37]  O. Morrissey,et al.  Fiscal Illusion and Political Accountability: Theory and Evidence from Two Local Tax Regimes in Britain , 2002 .

[38]  Lars-Erik Borge.  Strong politicians, small deficits: evidence from Norwegian local governments , 2005 .

[39]  J. Sachs,et al.  Government Spending and Budget Deficits in the Industrial Economies , 1989 .

[40]  Roumeen Islam,et al.  Does More Transparency Go Along with Better Governance? , 2006 .

[41]  W. Niskanen.  Bureaucracy and representative government , 1971 .

[42]  M. Keen,et al.  Decentralization and the Quality of Government , 2000 .

[43]  Sidney Verba,et al.  Participation and Political Equality: A Seven-Nation Comparison. , 1980 .

[44]  B. Torgler,et al.  Government accountability and fiscal discipline :a panel analysis using Swiss data , 2007 .

[45]  J. de Haan,et al.  Fragmented Government Effects on Fiscal Policy: New Evidence , 2001 .

[46]  R. Campbell.  Leviathan and Fiscal Illusion in Local Government Overlapping Jurisdictions , 2004 .

[47]  David Dreyer Lassen,et al.  Fiscal Transparency, Gubernatorial Approval, and the Scale of Government: Evidence from the States , 2002, State Politics & Policy Quarterly.

[48]  Ricardo Hausmann,et al.  Budget Institutions and Fiscal Performance in Latin America , 1996 .

[49]  R. Prud’homme.  The dangers of decentralization , 1995 .

[50]  J. Sachs,et al.  Political and Economic Determinants of Budget Deficits in the Industrialdemocracies , 1988 .