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Transparency and economic policy

Gavazza, Alessandro and Lizzeri, Alessandro (2009) Transparency and economic policy. Review of Economic Studies, 76 (3). pp. 1023-1048. ISSN 0034-6527

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Identification Number: 10.1111/j.1467-937X.2009.00547.x

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.

Item Type: Article
Official URL: http://restud.oxfordjournals.org/
Additional Information: © 2009 The Review of Economic Studies Limited
Divisions: Economics
Subjects: H Social Sciences > HC Economic History and Conditions
J Political Science > JA Political science (General)
JEL classification: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior
H - Public Economics > H1 - Structure and Scope of Government > H11 - Structure, Scope, and Performance of Government
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Sets: Departments > Economics
Collections > Economists Online
Date Deposited: 17 Feb 2014 15:52
Last Modified: 19 Feb 2014 14:41
URI: http://eprints.lse.ac.uk/id/eprint/55703

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