An Empirical Investigation on the Relationship between Fiscal Transparency and Institutional Quality

Abstract

Fiscal transparency, a cornerstone of effective public financial management, encompasses the reliability, comprehensiveness, timeliness, and accountability of reporting on public finances. The quality of institutional structures plays a pivotal role in fostering and sustaining fiscal transparency. Analysing data from 57 countries over the 2008–2021 period using ordered probit analysis, this study reveals significant impacts of political stability, absence of violence, regulatory quality, rule of law, corruption control, and government effectiveness on fiscal transparency. In economies with lower transparency levels, variables such as voice and accountability, government effectiveness, and rule of law have limited positive effects, whereas their influence strengthens in economies with higher transparency. Interestingly, while political stability and corruption control positively affect low-transparency economies, their impact turns negative in highly transparent countries. Strengthening the rule of law, improving regulatory quality, fostering accountability, and enhancing anti-corruption measures are essential for narrowing disparities in transparency and promoting sustainable, credible public financial management.