Effects of fiscal transparency on inflation and inflation expectations: Empirical evidence from developed and developing countries

Abstract

Based on the arguments that a more transparent fiscal system provides policymakers with incentives to adopt better policies, in this study, we assess whether fiscal transparency affects inflation, inflation volatility, inflation expectations and expected inflation volatility. We analyze the efforts made by 82 countries in terms of increasing fiscal transparency and, based on panel data methodology, we estimate the effects of fiscal transparency on inflation and inflation expectations, as well as on inflation volatility and inflation expectations volatility. Our study is the first to present this empirical evidence, representing a contribution to the literature. The findings suggest that countries with higher levels of fiscal transparency tend to have lower inflation rates and lower inflation volatility, as well as expectations of lower inflation and less volatility in inflation expectations. The results also suggest that fiscal transparency has a stronger effect on inflation in the sample containing inflation targeting developing countries.