Posted by Tim Irwin
What encourages governments to publish information abouttheir finances? A new IMF working paper, “Revealing theMysteries of State: The Origins of Fiscal Transparency in Western Europe” aimsto shed light on this question by examining the history of European fiscaltransparency. It was inspired by the Fund’s work on promoting fiscaltransparency (see this policy paper andthe new draft FiscalTransparency Code).
The working paper looks back as far as Athens in the fifth-centuryBC and notes a few of the developments of the last two decades, but itconcentrates on the fiscal secrecy of the age of absolutism, in whichgovernments used spies to uncover the accounts of other states, and on theefforts of eighteenth- and nineteenth-century reformers to get the accountspublished.
One factor encouraging transparency identified by the paperis the strength of governments’ need to raise money from skeptical lenders andtaxpayers. Its influence can be seen at work on many occasions, includingmedieval Spain and seventeenth-century England, but it was particularly evidentduring the French Revolution.
One of the Revolution’s causes was the dire state of thegovernment’s finances. To avoid bankruptcy, the government needed to overhaulthe tax system to generate much more revenue. And, though the king claimed theright to levy taxes without anyone else’s approval, he sought an endorsementfrom an assembly of “notables.”
The problem was that the government’s budgets and accountswere state secrets, so the assembly was being asked to approve reforms withoutknowing how much money the government was collecting or spending. Rejecting thefinance minister’s argument that the king had seen the accounts and should betrusted, one notable wrote, “it was our right not to advise unless we thoughtthe measures were proper, and . . . we could not think of new taxes unless weknew the returns of expenditure and the plans for economy.”[1]
The king’s failure to win approval of his reforms tookFrance once step closer to revolution and the claim in the Declaration of the Rights of Man and of the Citizen that “All citizenshave the right to ascertain, personally or through their representatives, thenecessity of the public tax, to consent to it freely, to know how it is spent,and to determine its amount, basis, and mode of collection, and duration.”
The Declaration established the principle, but of course thestruggle for fiscal transparency continued. In France, routine publication ofbudgets and accounts appears to have begun only after the Napoleonic Wars. And argumentsabout the kinds of fiscal information governments need to produce havecontinued to this day.
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