Budget Transparency of Local Governments: The Political Economy of City and Municipality Budgets in Croatia

Abstract

This paper investigates the budget transparency of Croatian local governments, i.e., the relationship between the open local budget index (OLBI) and a set of economic, political and socio- -cultural variables. It uses a unique panel database of all 128 cities and 428 municipalities in 2015 and 2016. To examine the differences among the samples and years and to determine whether the different samples have different driving forces, a regression analysis based on a Poisson distribution is used. In the total (cities and municipalities) and city samples, average income per capita (p.c.) is the most important determinant of the OLBI, which confirms Ferejohn's principal-agent model. At the municipality level, the findings indicate that political variables (ideology and political competition) are the factors that play the most important role, which is in line with the principal-agent and legitimacy theories. Findings point out to the necessity of reconsidering the number of local governments, particularly smaller ones lacking the capacity for maintaining basic budget transparency standards and to motivate citizens to demand and local governments to offer more budget transparency.