Fiscal Transparency Research Articles

Can digital economy mitigate vertical fiscal imbalances in Chinese local government? The role of fiscal transparency

Can digital economy mitigate vertical fiscal imbalances in Chinese local government? The role of fiscal transparency

Performance-Based Budgeting and Corporate Innovation: Evidence from a Quasi-Natural Experiment in China

ABSTRACT This paper exploits a quasi-natural experiment to investigate the relationship between performance-based budgeting (PBB) and corporate innovation in China. The findings indicate a significant rise in patent applications and patents granted among firms headquartered in provinces that have adopted PPB. The increase is particularly pronounced for firms in provinces facing higher fiscal pressure and stronger government audits. The positive impact of PBB on corporate innovation is considerable for corporates with state-owned attributes and high financial constraints. The mechanisms of government fiscal transparency, research and development subsidies, and tax incentives are supported. Additional analyses indicate that the current PBB in China shows limitations in covering the governmental fund budget comprehensively. Moreover, in regions with increased government spending on science and technology, the influence of PBB on corporate innovation is significantly more pronounced. Collectively, the evidence implies that PBB can serve as a catalyst for corporate innovation.

PREDICTIVE TECHNIQUES AND ARTIFICIAL INTELLIGENCE MODELS IN THE MANAGEMENT OF DEFAULTY PUBLIC DEBTS: COMPARISON BETWEEN LINEAR REGRESSION AND DECISION TREES

The study analyzed focuses on the application of predictive models, specifically Linear Regression and Decision Trees, for the management of defaulted debts in the public context of the United States. The main objective of the work is to compare the effectiveness of these models in predicting the compliance of debts with more than 120 days, assisting in directing these debts to the Treasury Offset Program (TOP), an essential initiative for the government's financial recovery. The problem that the study addresses is the need for effective management of defaulted public debts, seeking to ensure compliance with public financial policies that promote compliance and the adequate redirection of financial resources to the government. This is particularly important to ensure fiscal transparency and accountability of federal agencies. The methodology used in the study was quantitative, based on the analysis of data on eligible debts extracted from reports of the US Treasury. Linear Regression and Decision Tree models were applied, with performance metrics such as Mean Absolute Error (MAE), Mean Squared Error (MSE), Root Mean Squared Error (RMSE) and Coefficient of Determination (R²). The study addressed financial and temporal variables to analyze the behavior of these debts and their compliance. The main results show that both models presented high accuracy in predictions, with Linear Regression showing a perfect fit (R² = 1) and Decision Trees standing out in capturing non-linear nuances of the data. The variable "Compliance Rate Amount" was identified as the most significant in the Decision Tree model, suggesting that the amount of the compliance rate is one of the most important factors in predicting the compliance of defaulted debts. This study offers valuable contributions to the field of public management, by demonstrating that the use of predictive models can help optimize debt recovery, improve fiscal transparency and contribute to more informed decision-making.

Fiscal decentralisation and renewable energy development: Inhibition or promotion?

In line with global green development and decarbonisation initiatives, China has prioritized renewable energy advancement in recent decades. Given the critical role of financial support, scholarly attention has increasingly focused on the impact of fiscal decentralisation (FD) within this sector. This study investigates FD's effect on renewable energy development, analyzing data from 30 Chinese provinces between 2008 and 2022. Findings reveal that FD tends to impede renewable energy progress. Specifically, a one-standard-deviation increase in FD leads to a decrease of 23.1775 % of a standard deviation in renewable energy development. However, this hindrance can be mitigated by foreign direct investment and central transfer payments, while research and development intensity exacerbates the negative impact. Notably, regions with limited natural resources, weaker environmental regulations, fiscal transparency, high marketisation, energy demand, and vertical fiscal imbalances experience a more pronounced decentralisation-renewable-energy relationship. Anti-corruption campaigns in China can alleviate but not reverse this effect. Furthermore, the diffusion of technology and cooperative efforts in nearby regions positively influence renewable energy development. Nonetheless, overall effects still turn out negative due to competition among local governments under the FD framework. Based on these findings, policy recommendations for accelerating renewable energy development are summarized.

Oil Royalties In Brazil: Between Financial Compensation And Taxation – A Legal And Economic Analysis

This article examines the use and distribution of oil royalties in Brazil, which shifted from being treated as financial compensation to taxation following the enactment of laws by the National Congress. This change in the treatment of royalties can be explained by public choice theory, which suggests that the actions of parliamentarians reflect the interests of pressure groups. Consequently, the compensation intended for entities where oil and gas exploration takes place began to be treated as a tax, benefiting all entities within the federation. Thus, it is reasonable to admit that the law's approval overlooked some essential characteristics of the nature of royalties by modifying their distribution to subnational entities that do not have oil exploration activities. Through a critical approach, the article suggests the need for a conceptual and normative review to ensure that royalties fulfil their role as a financial compensation mechanism without harming economic growth or fiscal transparency.

The impact of government data accessibility on cross-regional venture capital investments

This study examines the association between government data accessibility and venture capital (VC)'s cross-regional investments. Exploiting the staggered establishment of government data open platforms (GDOPs) across different cities in China as a positive shock to government data accessibility, we find that this policy significantly increases cross-regional VC investments in treatment cities relative to others. Furthermore, the positive impact is achieved through the reduction of information asymmetry, as the establishment of GDOPs attracts VC investments from greater geographical distances. Additionally, we find a more pronounced positive effect of GDOPs on promoting cross-regional VC investments in regions with higher terrain ruggedness and lower fiscal transparency. Overall, this study demonstrates that the government's informatization and transparency initiatives can positively influence financial markets by enhancing the cross-regional flow of financial capital.

Impact of Local Government Debt on Regional Innovation and Entrepreneurship: Evidence from China

Local government debt serves as a crucial source of funding for local governments to provide public services and steer regional economic development. Exploring the impact of local government debt on regional innovation and entrepreneurship holds significant practical importance. This paper uses the data of 295 cities in China from 2015 to 2020 and uses the fixed effect model for empirical analysis. Our findings reveal a positive association between local government debt and regional innovation and entrepreneurship. This positive effect is attributed to the amplification of both the venture capital agglomeration effect and the technology agglomeration effect. Moreover, this relationship is particularly pronounced in cities characterized by high fiscal transparency, officials’ promotion pressure, and poor business environment. Ultimately, this paper enriches the existing literature by enhancing our comprehension of the economic implications of local government debt and the factors influencing regional innovation and entrepreneurship. Furthermore, it furnishes empirical evidence regarding the effectiveness of local government debt management in China.

The influence of fiscal transparency on expenditure by regional and provincial governments in Vietnam

The intricate relationship between budget transparency and government expenditure has been confirmed, with a particular focus on how these dynamics are influenced by spatial and temporal factors. This study deals with the spatio-temporal effects of transparent communal budgets on local government spending, specifically across the 63 provinces in Vietnam. By analyzing data over time, the study uncovers critical insights into how the disclosure of budget information influences government spending patterns, both in the short term and the long term. The findings reveal a nuanced relationship, where both the direct and indirect effects of budget transparency on expenditure tend to be negative, suggesting that increased transparency may lead to a reduction in government spending. This trend is observed from both a short-term perspective, where immediate changes in budget disclosure affect spending, and a long-term perspective, where the effects of sustained transparency become more evident. The study highlights significant regional disparities in the impact of budget transparency on government expenditure. It finds that the influence of budget disclosure is less pronounced in northern Vietnam compared to the southern regions. The results advocate for policies that support targeted resource allocation at the provincial or regional levels. Such tailored approaches are essential for achieving more effective and equitable government budget management, ensuring that transparency initiatives are adapted to the specific needs and conditions of different regions within Vietnam. Overall, this research contributes to the broader understanding of how transparency in budgetary processes can influence government spending. By highlighting the spatial and temporal dimensions of this relationship, the study provides valuable insights for policymakers seeking to enhance fiscal accountability and optimize public resource allocation in Vietnam.

The impact of real estate market risks on the issuance costs of urban investment bonds: Evidence from China

It has been widely believed that bond spreads are positively correlated with related market risks. However, some studies in China's urban investment bond (UIB) market indicate that an increase in real estate market risks usually narrows UIB spreads. This article focused on such puzzle and introduced a quadratic form regression to detect a U-shaped relationship between housing price volatility and UIB spreads, which confirms that UIB pricing is actually in consistence with the traditional bond theory. We further indicated that spreads of guaranteed UIBs were barely affected by housing price volatility, and fiscal transparency seemed to mitigate such volatility's impact on the issuance costs of UIBs. Those findings not only illuminate ways of mitigating risks in the UIB market in China using market instruments but also have important implications for how local governments around the world can mitigate their debt-related problems.

The failure of the United Kingdom’s accounting and fiscal governance

PurposeThis paper aims to unravel the puzzle that the United Kingdom’s high-quality government accounting and fiscal architecture is associated with low-quality outcomes, including poor productivity growth, high public debt, public services which do not meet citizen expectations and historically high levels of taxation. It contributes to public sector accounting research in the fields of fiscal transparency and governance.Design/methodology/approachThis paper uses Miller and Power’s (2013) economization framework and Dunsire’s (1990) concept of collibration to explain why being a global leader in public sector accounting reform and in fiscal and monetary architecture has not protected the UK from weak governance. The intersection of economization’s roles of accounting with modes of government accounting clarifies the puzzle.FindingsWhereas accruals government accounting contributes to fiscal transparency, this is not a sufficient condition for well-judged policy and its effective application. Collibration is the dominant mechanism for mediation in the fiscally centralized UK, but it has failed to deliver stable outcomes, in part because Parliament is limited in its ability to hold back inappropriate behaviour by the Executive. Subjectivization has disrupted adjudication because governments at all levels resist constraints on their behaviour, with unpredictable and often damaging consequences.Originality/valueThis paper provides insights through the combined lens of economization and modes of government accounting, demonstrating the practical value of this conceptualization. Although some causes for unsatisfactory outcomes are specific to the UK, there are cautions for accounting and fiscal reformers in other countries, such as Member States of the European Union.

Advancing fiscal transparency in Latin American countries: new findings in reports on tax sustainability in Chile

PurposeThe objective of this study is to generate new fiscal transparency indicators based on fiscal sustainability reports voluntarily disclosed by Chilean companies, leaders in Latin America in the issuance of green, social and sustainability corporate bonds (OECD, 2023a; OECD, 2018).Design/methodology/approachThe sample included the analysis of sustainability reports of 30 Chilean companies with the highest market capitalization published in the period 2021. A correlation was carried out for each of the companies in the sample with the intention of detecting differences between several groups of paired dichotomous variables. For this, Cochran's Q test was used; the McNemar test; the Friedman test; the Wilcoxon test; the Levene test and the Kruskal−Wallis test were also used.FindingsIn the case of the companies in the sample, for the 2021 period there was an increase in disclosures of tax strategies compared to the study carried out by Faúndez-Ugalde et al. (2022) for the period 2020. However, there is still a lower degree of compliance in reporting fiscal risks and “country by country” information.Practical implicationsThe commitment of companies to assume tax transparency standards improves their behavior in compliance with their tax obligations and provides greater certainty to develop actions to mitigate their tax risks.Social implicationsThe results demonstrate practical implications, where fiscal sustainability reports can enhance the work of tax administrations by defining indicators of good fiscal practices.Originality/valueThis study expands the research on the fiscal sustainability standards of Chilean companies, thus providing a deeper understanding of their performance regarding fiscal transparency.

Impact of fiscal regulation on regional carbon intensity: assessing the carbon emission reduction effect of transparent government revenue and expenditure

ABSTRACT Fiscal regulations enhance fiscal compliance and reduce undue government intervention in economic performance, which may have important implications for low-carbon development. However, few empirical studies have investigated the impact of fiscal regulations on carbon intensity. Based on data from 278 cities in China from 2005 to 2020, this study constructed a difference-in-differences model using the release of the new Budget Law to investigate the impact of fiscal revenue and expenditure regulation on regional carbon emission intensity. The empirical results indicated that fiscal regulations can significantly reduce the intensity of carbon emissions. The mechanism tests indicate that fiscal regulation can optimize the allocation of local governments’ fiscal revenues and expenditures and improve infrastructure and innovation. Heterogeneity analyses indicate that the effect of fiscal regulation on reducing carbon emission intensity is more obvious in regions with high historical emissions and a high proportion of polluting industries. Based on the empirical results, the government should continuously improve fiscal transparency and the efficiency of fiscal fund use to reduce the impact of unreasonable fiscal revenue and expenditure on carbon emissions intensity.

Government Environmental Expenditure, Budget Management, and Regional Carbon Emissions: Provincial Panel Data from China

To explore the impact of government fiscal intervention on regional carbon emissions, this paper employs a two-way fixed-effects model to analyze data from 30 provinces in China, spanning the period from 2008 to 2017. This study investigates the effects of local government environmental expenditure and government budget on the per capita volume, intensity, and performance of regional carbon emissions. The results show that government environmental expenditure is beneficial to reducing regional carbon emissions and improving regional carbon emission performance. Second, the smaller the deviation between the government budget and final accounts, the more conducive it is to reducing carbon emissions. Third, we found that government environmental expenditure has the strongest inhibitory effect on regional carbon emissions in the eastern region, followed by the central region, and the weakest in the western region. Finally, government financial transparency positively moderates the inhibitory effect of government budget management on regional carbon emissions, that is, when fiscal transparency is high, the amplification effect of budget deviation on regional carbon emissions is weakened.

Fiscal Policy in Maritime Economics: Implications for Growth and Sustainability

This research explores the impact of fiscal policies on maritime economics, focusing on macroeconomic stability, sector-specific resilience, and sustainability initiatives within maritime industries. Through qualitative analysis and expert perspectives, the study examines how fiscal interventions influence economic growth, address regional disparities, and promote environmental stewardship in maritime sectors. Key findings highlight the effectiveness of fiscal tools in stabilizing economic fluctuations, fostering innovation, and enhancing industry competitiveness. Challenges such as regulatory complexities, uneven distribution of fiscal benefits, and the need for enhanced fiscal transparency are also discussed. The research underscores the importance of tailored fiscal strategies that support inclusive growth, sustainable development, and global competitiveness in maritime economies.

The Deterrent Role of Social Norms on Tax Evasion in Indonesia

ABSTRACT Indonesia, as a developing nation, confronts significant challenges with tax evasion, exacerbated by a substantial shadow economy. This phenomenon results in the non-reporting or underreporting of hundreds of trillions of rupiah in income, which should constitute the tax base. Such dynamics create strong incentives for individuals to engage in tax evasion practices. Researchers have extensively examined tax evasion across various disciplines and methodologies, yet each approach has its limitations, leaving the issue incompletely addressed. Hence, this study integrates these shortcomings, encompassing detection risk, fiscal psychological burden, fiscal transparency, and modernization of tax administration as pivotal factors influencing tax evasion. Furthermore, tax evasion in Indonesia often garners negative publicity, particularly involving unscrupulous employees of the Directorate General of Taxes (DJP), thereby contributing to a highly unfavorable societal perception of tax officials. This negative stigma potentially shapes social norms that impact taxpayer compliance behaviors. Consequently, this research employs social norms as a moderating variable. The study gathered valid responses from 418 individual taxpayers through distributed questionnaires, revealing significant impacts of detection risk, fiscal psychological burden, fiscal transparency, and modernization of tax administration on tax evasion. Interestingly, social norms were found to moderate all independent and dependent variables except for the modernization of tax administration.

Impact of fiscal transparency on local fiscal revenue and expenditures: Evidence from a natural experiment

This study examines the impact of fiscal transparency on local fiscal revenue and expenditures through a natural experiment conducted in Jiaozuo, China. Using a synthetic control approach, we analyze data from 1984 to 2008, considering factors such as industrial structure, population, and economic development. The introduction of fiscal transparency reforms in Jiaozuo in 1998 initially led to a significant reduction in per capita fiscal revenue and expenditures, followed by a recovery and growth over time. The findings indicate that fiscal transparency initially restrains fiscal revenue and expenditures due to enhanced scrutiny and improved governance. However, over the long term, it stimulates economic growth and increases fiscal revenue and expenditures. This study highlights the dual impact of fiscal transparency: it initially restricts inappropriate fiscal behaviors while fostering economic growth and fiscal health in the longer term. The case of Jiaozuo provides valuable insights for other regions and countries, especially in the postepidemic era, underscoring the importance of fiscal transparency in improving government accountability and economic resilience.

Can government environmental auditing and fiscal transparency promote the green development of heavy-polluting firms?

Corporate green development (GD) is critical for realizing China’s double carbon targets, and government environmental auditing is an essential path for supervising the GD behavior of enterprises. However, the effect of government environmental auditing on corporate GD has not been thoroughly investigated, particularly through the path of improving fiscal transparency. This study takes Chinese A-share listed companies in heavily polluting industries from 2011 to 2022 as the sample and uses statistical models to empirically test the effects. The results indicate that government environmental auditing can significantly facilitate corporate GD by improving fiscal transparency. Government auditing functions to checking and preventing environmental pollution issues can promote enterprises’ GD. The function of preventing pollution issues has the most substantial promotion effect. The analysis of regional heterogeneity indicates that government environmental auditing in the western region has the strongest effect. The conclusion of this study provides theoretical support and guidance for strengthening government environmental auditing, improving government fiscal transparency, and promoting the GD of enterprises.

Enhancing Taxpayer Compliance Through Fiscal Transparency, Participation and Accountability: Insights from Key Figures of Islamic Boarding Schools in Depok City

Purpose — This study explores the perspectives of key figures from Islamic boarding schools (Kiai Pesantren) in Depok City, Indonesia, regarding the efforts to promote fiscal transparency, participation and accountability (FTPA) by the government for enhancing taxpayer compliance. Design/Methodology/Approach — This study is based on the interpretivist paradigm. Keywords related to Muslims’ obligations, zakat and taxes were sourced to find relevant literature. A thematic analysis was conducted of in-depth interview data from Kiai Pesantren regarding their perspectives on state fund management. Findings — The results show the importance of FTPA in state fund management, especially when aligned with Islamic principles. Fiscal transparency involves directing tax funds towards poverty alleviation alongside infrastructure development. The involvement of religious organisations can be aimed at fostering moral responsibility among officials, while citizen participation can be facilitated through open data for budget planning. The accountability of public officials must be accompanied by efforts to minimise corruption and enforce strict punishments for corrupt activities. Moreover, fully crediting zakat payments for Muslim taxpayers could improve tax compliance, but this requires assurance through future policy reforms. Originality/Value — This study contributes to the literature by integrating Islamic principles into the framework of FTPA. Research Limitations/Implications — Broader insights into tax compliance management and support for Sharīʿah-based taxation could be addressed by involving Islamic scholars across countries.

The impact of fiscal opacity on business confidence: empirical investigation from an emerging economy

PurposeThe relevance of transparency related to public finances is considered fundamental for good economic policy management. An environment of greater fiscal transparency allows the private sector greater predictability, improving the entrepreneur’s decision-making ability. This study empirically analyzes fiscal opacity’s effect on business confidence in an emerging economy.Design/methodology/approachWe use monthly data from the Brazilian economy from January 2010 to March 2023. Based on Ordinary Least Squares (OLS) and the Generalized Method of Moments (GMM) regressions, we analyze whether fiscal opacity, measured by the signal-to-noise ratio, affects business confidence. Moreover, to evaluate the duration of a shock transmitted by the fiscal opacity on business confidence, we consider an impulse-response function generated by a Vector Auto-Regressive (VAR).FindingsWe found that fiscal opacity resulting from the lack of information to anticipate the budgetary result of the public sector deteriorates business confidence.Practical implicationsWe present robust empirical evidence that allows us to assume that using a strategy to reduce fiscal opacity through mechanisms that provide reliable economic data and fiscal forecasts is essential for fiscal policy to affect business confidence positively. Reducing fiscal opacity provides greater clarity regarding the budget outcome, reduces economic uncertainty and improves the fiscal policy expectation channel.Originality/valueThis paper is the first to analyze how the lack of information for market agents to anticipate the government’s budget execution accurately (fiscal opacity) affects business confidence.

Can government digitalization promote the urban–rural equalization of basic public services? Evidence from double machine learning

ABSTRACT Information technology, as an important tool for realizing the modernization of national governance system and capacity, has brought new opportunities for improving the government’s capacity to deliver basic public services (BPS). Taking the information benefiting people pilot policy as an exogenous shock, we use the double machine learning model to examine the impact of government digitization on urban – rural BPS equalization based on panel data of prefectural cities in China from 2006 to 2021, which overcomes the limitations of the linear setting of traditional causal inference models and maintains estimation accuracy under high-dimensional control variables. The findings suggest that government digitization can significantly contribute to urban – rural BPS equalization, and this conclusion holds after a series of robustness tests. Mechanism test reveals that government digitization promotes urban – rural BPS equalization by improving the efficiency of BPS supply and the efficiency of fiscal transfer payment. Moreover, for cities with low fiscal pressure, high fiscal transparency and low economic growth pressure, government digitization will have a stronger driving effect on urban – rural BPS equalization. This study provides valuable theoretical insights and policy ideas for promoting BPS equalization through digital governance.