The IMF has recently published working paper by Timothy C. Irwin (Shining a Light on the Mysteries of State: The Origins of Fiscal Transparency in Western Europe) which I found a very interesting read for many reasons. Though it may seem an esoteric topic, the issue of transparency in the finances of government is something that, as Irwin notes, that traces its origins back to the beginnings of Western democracy itself and continues play an important role in the most important debates of the moment.

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The paper itself is a fascinating summary of a field that has had received little technical study from economics scholars but that nonetheless (a) shines light on the evolution of economic thought in the West and (b) still shapes many of today’s attitudes toward government’s role in society. After all, in some ways, the recent budget battles in DC hinge upon just where the U.S. government’s real financial liabilities lie and what is the nature of those obligations in the future. The fact that it is still so hard to decipher exactly how our government spends its capital makes some of these debates hard to have and thus less democratic.

Fortunately, the author notes, governmental financial transparency in Western Europe has  improved greatly and should continue to do so. As Irwin writes:

Public fiscal reporting in Western Europe is now impressively extensive. Governments publish their budget, report on its execution during the year, and then publish audited end-of-year accounts. At the same time, fiscal statistics provide a comprehensive picture of the government sector. There are also medium- and long-term fiscal forecasts and many narrative discussions of the health of public finances.

Yet the hopes of the Enlightenment have not been completely fulfilled. On the one hand, the avalanche of data has created a need for plain-language summaries of public finances that is not always met. On the other hand, there are still problems at the technical level. Some European governments, for example, do not yet publish financial statements that include both accrual- and cash-based statements of fiscal flows as well as a balance sheet of fiscal stocks.

As a result, it may be difficult or impossible to find information on, among other things, the values of these governments’ nonfinancial assets, pension liabilities, or derivatives.

Similarly, although data on the government sector are available for all members of the European Union, there are no data in most European countries on the consolidated finances of the public sector, which includes government-owned businesses. As a result, a government can use these businesses to carry out some government spending without this showing up in the government’s accounts. Tocqueville would still have reason to complain about his data, and a curious diplomat might wonder whether he could find all the information he wanted in the public domain.

Overall, I recommend the paper as a succinct review of the field and an and introduction to what is still an important debate about government transparency.

 

Read more:

http://www.imf.org/external/pubs/ft/wp/2013/wp13219.pdf

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Posted by Carlos Alvarenga

Carlos Alvarenga is the Executive Director of World 50 ThinkLabs and an Adjunct Professor at the University of Maryland's Smith School of Business.

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