New fiscal transparency index and public debt borrowing costs

Abstract

This study examines the determinants of public debt borrowing costs, focusing particularly on the impact of fiscal transparency on sovereign bond rates. To assess this relationship, we construct a new Fiscal Transparency Index (FTI) inspired by the

concepts of monetary transparency, incorporating the roles of all budgetary entities including independent fiscal institutions (IFIs), the government, the legislature, and the supreme audit institutions (SAI). This index encompasses dimensions of political, economic, procedural, policy, and operational transparency. Our analysis spans 27 developed and developing countries from 2006 to 2023. Findings indicate enhanced fiscal transparency correlates with reduced sovereign bond rates, especially regarding developing economies' short-term interest rates and developed countries' long-term ones. Results are also robust to several controls, alternative measures, dependent variables, and modelisations.

Keywords: Fiscal Transparency, Sovereign bonds yields, Budget Process, Public debt

JEL Classification: E43, E62, H63, H61