Budget transparency and fiscal performance: Do open budgets matter?

Existing published research of 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 and raised a fundamental question: Why should greater transparency improve fiscal performance? The objective of the proposed paper is to 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 expenditures resulting in budget deficit and public debt: (1) reduce fiscal illusion, (2) decrease information asymmetry between politicians and voters which may improve accountability and increase political competition, and (3) strengthen the enforcement of fiscal rules. The results of statistical analysis (conditional means analysis for 2008 and correlation and regression analysis for 2003 to 2009) did not prove any significant negative relationship between budget transparency, measured by the Open Budget Index, and budget deficit or public debt.