The Effects of Budget Transparency on the Budget Balances and Expenditures of Croatian Local Governments

Abstract

Abstract The purpose of this paper is to find out whether budget transparency (BT) allows for better control over public finances, especially in pre-election periods. Thus we investigate the impact of BT, i.e., the digital availability of five key budget documents, on the budget balances and expenditures of all 556 Croatian local governments (LGs) over the 2014-2019 period. The dynamic panel data analysis with several control variables shows that higher BT tends to increase expenditures and the probability of achieving deficits, especially in poorer LGs. Improved BT increases electorates’ confidence, making public goods and services more interesting to voters, ultimately increasing public expenditures. However, we found that BT limits political budget cycles (PBCs), i.e., ‘opportunistic’ expenditures and deficits in the pre-election period.