Lack of fiscal transparency and economic growth expectations: an empirical assessment from a large emerging economy

Abstract

This paper provides empirical evidence of the lack of fiscal transparency’s effect (fiscal opacity) on the government’s budget deficit on economic growth expectations. Based on the Brazilian data from 2004 to 2018 and using signal-to-noise ratios, we built fiscal opacity indicators that measure the agents’ level of ignorance regarding the government’s budget deficit. The evidence from several regression models indicates that an increase in fiscal opacity undermines short-term expectations of economic growth (current year, 12 months ahead, and next calendar year). Moreover, the impact of fiscal opacity on growth expectations is more significant when we consider the manufacturing sector. The findings suggest that discretionary fiscal policy can damage economic growth expectations.