The impact of budget transparency on tax revenue forecasts: Evidence from Croatian local government units

Abstract

Abstract The tax revenues that are actually collected by local government units for a fiscal year frequently differ from what is planned in their enacted budgets. Despite the literature on budget credibility, little is known about the effect of budget transparency on budget forecasting deviations and errors. This paper analyses whether the level of online local budget transparency (OLBT) affects tax revenue forecasting and the impact of other control variables (e.g., budget balance, income, population, political ideology and strength) on budget deviations for all 556 Croatian local government units (LGUs; cities and municipalities) during the period 2016–2022. This paper also analyses public budget cycles in tax revenue planning at the Croatian local government level. The results show that in LGUs where OLBT increases in pre-election years, underestimation of tax revenues is higher, and overestimation is lower. In election and post-election years, with increased OLBT, underestimation of tax revenues is lower and overestimation is higher.