Does transparency mitigate the political budget cycle?

Bodo Herzog (Department of Economics, ESB Business School, Reutlingen, Germany)

Journal of Economic Studies

ISSN: 0144-3585

Publication date: 9 October 2017

Abstract

Purpose

The purpose of this paper is to study the impact of transparency on the political budget cycle (PBC) over time and across countries. So far, the literature on electoral cycles finds evidence that cycles depend on the stage of an economy. However, the author shows – for the first time – a reliance of the budget cycle on transparency. The author uses a new data set consisting of 99 developing and 34 Organization for Economic Cooperation and Development countries. First, the author develops a model and demonstrates that transparency mitigates the political cycles. Second, the author confirms the proposition through the econometric assessment. The author uses time series data from 1970 to 2014 and discovers smaller cycles in countries with higher transparency, especially G8 countries.

Design/methodology/approach

Mathematical model and a respective econometric model testing.

Findings

First, the author shows in the theoretical model that higher transparency mitigates the PBC. Second, the author confirms the theoretical proposition through the econometric model. The author confirms that the countries with higher transparency have smaller budget cycles. Or technically, the author cannot reject the null-hypothesis that the budget cycles are different due to transparency.

Research limitations/implications

As explained in the paper: one issue is the data limitations in respect to the transparency measures. Data for Google are just available since 2004. Data for broadband-subscription are just on annual frequency. But both limitations can be tackled in the future. Hence, the findings are first evidence and a benchmark for future studies.

Practical implications

First, higher public transparency implies smaller budget cycles. In the end, this enhances the stability of economic and fiscal policy. Second, policy-makers have to consider the impact of higher transparency in respect to future election pledges. In a more transparent world, all voters can easily check the commitment of previous election pledges.

Social implications

Transparency helps to improve democracy and thus enhances the political credibility because it allows the voters to check the commitment of the elected policy-makers.

Originality/value

First, the author shows – for the first time – a reliance of the budget cycle on transparency. Second, the author is the first that build a new theoretical model that extends the existing literature in respect to transparency and the size of the budget cycle. Third, the author uses for the first time – in this literature – new internet-based data such as broadband-subscription and Google search data. Fourth, the author empirically proves the new hypothesis based on the new data sources.

Keywords

Citation

Herzog, B. (2017), "Does transparency mitigate the political budget cycle?", Journal of Economic Studies, Vol. 44 No. 5, pp. 666-689. https://doi.org/10.1108/JES-07-2016-0132

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Publisher

:

Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

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