Transparency and economic policy

Alessandro Gavazza, Alessandro Lizzeri

    Research output: Contribution to journalArticlepeer-review

    Abstract

    We provide a two period model of political competition in which voters imperfectly observe the electoral promises made to other voters. Imperfect observability generates an incentive for candidates to offer excessive transfers even if voters are homogeneous and taxation is distortionary. Government spending is larger than in a world of perfect observability. Transfers are partly financed through government debt, and the size of the debt is higher in less transparent political systems. The model provides an explanation of fiscal churning; it also predicts that groups whose transfers are less visible to others receive higher transfers, and that imperfect transparency of transfers may lead to underprovision of public goods. From the policy perspective, the main novelty of our analysis is a separate evaluation of the transparency of spending and the transparency of revenues. We show that the transparency of the political system does not unambiguously improve efficiency: transparency of spending is beneficial, but transparency of revenues can be counterproductive because it endogenously leads to increased wasteful spending.

    Original languageEnglish (US)
    Pages (from-to)1023-1048
    Number of pages26
    JournalReview of Economic Studies
    Volume76
    Issue number3
    DOIs
    StatePublished - 2009

    ASJC Scopus subject areas

    • Economics and Econometrics

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