Transparency and Economic Policy

29 Pages Posted: 3 Aug 2005 Last revised: 19 Aug 2008

See all articles by Alessandro Gavazza

Alessandro Gavazza

London School of Economics & Political Science (LSE) - Department of Economics

Alessandro Lizzeri

Princeton University - Department of Economics

Date Written: August 18, 2008

Abstract

We provide a multiperiod 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 unambigously improve efficiency: transparency of spending is beneficial, but transparency of revenues can be counterproductive because it endogenously leads to increased wasteful spending.

Suggested Citation

Gavazza, Alessandro and Lizzeri, Alessandro, Transparency and Economic Policy (August 18, 2008). Available at SSRN: https://ssrn.com/abstract=754784 or http://dx.doi.org/10.2139/ssrn.754784

Alessandro Gavazza (Contact Author)

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Alessandro Lizzeri

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States
08544 (Fax)

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