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November 13, 2013

How Long Does it Take to Achieve Fiscal Transparency?

Posted by Tim Irwin

In many developing and emerging economies today there are demands for more fiscal transparency, to stop the misuse of public funds. How long might it take for these demands to translate into the kind of transparency achieved in countries like France, Sweden, and the United Kingdom? (The Open Budget Survey has information on fiscal transparency in these three countries and many others.) This new working paper on the history of fiscal transparency in Western Europe (see earlier blog) doesn’t aim to answer questions about developing and emerging economies, but it may provoke some thoughts on the subject.

The evidence it presents can be read in two different ways. On the one hand, there were debates about fiscal transparency in Europe two hundred years ago, which suggests that the transition from secrecy to transparency could be a long one. To illustrate, it’s perhaps worth quoting three advocates of transparency who, for reasons of space, didn’t get discussed in the working paper.

One was Madame de Staël, a prolific and influential author whose father, as French minister of finance, published a ground-breaking but one-off report on public finances. In a book published in 1818, Madame de Staël defended fiscal transparency against “courtiers” who said that publishing the government’s accounts undermined the king’s authority. She claimed that the courtiers’ real reason for opposing publication was a fear of cuts to spending that benefitted them personally:

"The courtiers exclaimed against a system of publicity in finance . . . while they solicited with equal vehemence, both for themselves and their connections, all the money [they could]. This inconsistency may . . . be explained by their just dread of exposing to the public eye the expenditure in which they were concerned; for the publication of the state of the finances had the very material advantage of giving the minister the support of public opinion for the various budget cuts that had to be made (pp. 62–63)."

Another was François Guizot, French statesman, historian, and Prime Minister 1847–48. In a book based on lectures he gave in the early 1820s, he wrote that the idea behind representative government was:

"to compel the whole body of citizens incessantly, and on every occasion, to seek after reason, justice, and truth . . . 1. by discussion, which compels existing powers to seek after truth in common; 2. by publicity, which places these powers when occupied in this search, under the eyes of the citizens; and 3. by the liberty of the press, which stimulates the citizens themselves to seek after truth, and to tell it to power (p. 227)."

A third was the economist and historian Sismondi. Describing constitutional monarchy in the 1830s, he wrote that:

"What secures the finances of constitutional monarchies from dilapidations, is the public and searching discussion of the receipts and expenses of the state; it is the right granted to the deputies of the nation to know everything, to examine everything, and to require an account of everything. No minister would dare to produce to an assembly of national deputies, at least if it is sufficiently numerous to inspire respect, a list of pensions through favor, of treasures lavished on mistresses, of establishments for illegitimate sons, of luxurious buildings raised to satisfy the caprice of the prince."[1]

That people were talking this way in Western Europe in the early 1800s might suggest that a country is likely to enjoy Western European–style fiscal transparency today only if open government has deep roots in its political culture. And it’s probably true that Western European fiscal transparency owes something to writers and politicians from the time of Staël, Guizot, and Sismondi.

But it’s also true that the transition from fiscal secrecy to (relative) fiscal transparency often happened suddenly—and in response to demands similar to those being expressed today in some developing and emerging economies. In France, for example, there were calls for more openness in the mid-1700s, and then a sudden opening-up in the 1780s, beginning with Madame de Staël’s father’s publication and culminating in the claims of the Declaration of the Rights of Man. The chaos of the French Revolution and Napoleon’s autocratic rule appear to have reversed this opening-up, but after Napoleon’s reign the publication of budgets and accounts suddenly became routine.

What about the circumstances in which increases in fiscal transparency are likely? The working paper argues that increases in Western Europe were encouraged by three factors:

  • improvements in technology, broadly understood to include not only the invention of printing and the Internet but also the spread of literacy,
  • the acceptance of political theories that stress the accountability of rulers to the people, and
  • rulers’ need to raise money from taxpayers and lenders, instead of being able to rely on rents from natural resources.

[1]J C L Simonde de Sismondi, “On Constitutional Monarchy,” in his Political Economy and the Philosophy of Government, with an introduction by M. Mignet, Reprints of Economic Classics, Augustus M. Kelley, 1966, p. 443. 

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy. 


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