The influence of transparency on budget forecast deviations in municipal governments

This paper analyzes the impact of transparency on fiscal performance. Our sample considers the 100 largest Spanish municipalities for the years 2008, 2009, 2010, 2012, and 2014. The results show that the level of municipal transparency influences budget forecast deviations in tax revenues and current expenditures. On the one hand, less transparent municipalities overestimate their revenues, allowing them to provide more public services without an immediate increase in taxes. On the other, these local governments, which are aware of the overestimation of their revenues, may spend less than they budgeted. More transparent municipalities, meanwhile, seem to be more prudent in their revenue estimations, since they underestimate their revenues, meaning they can spend more than projected. Our results also show that the behavior of politicians is influenced by the phase of the electoral cycle in which they find themselves, with politicians overestimating expenditures in the year before election.