Fiscal transparency, political parties and debt in OECD Countries


The purpose of this paper is to investigate whether a higher degree of fiscal transparency is in fact associated with lower public debt, other things equal. To do this, we extend the career-concerns model of public debt developed by Persson and Tabellini (2000) and, in particular, Shi and Svensson (2002) to include political parties with preferences over public spending. We show that this allows us to integrate as implications of a single model three hitherto-separate results in the literature on deficit and debt accumulation: that transparency decreases debt accumulation, at least partly through an effect on the electoral cycle (Shi and Svensson, 2002), that increasing political polarization increases debt accumulation (see, for instance, Alesina and Tabellini, 1990), and that right-wing governments, at least for strategic reasons, tend to have higher deficits than left-wing governments (Persson and Svensson, 1989).

James E. Alt, Center for Basic Research in the Social Sciences and Department of Government, Harvard University and David Dreyer Lassen Economic Policy Research Unit and Institute of Economics, University of Copenhagen November 5, 2003... 

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