Can better financial conditions lead to more fiscal transparency? Evidence from municipalities in California

Hyewon Kang and Gang Chen

Local Government Studies, 2022, vol. 48, issue 5, 821-841

Abstract: Fiscal transparency is widely promoted as an effective means to achieve government accountability. Although scholars have explored various drivers of fiscal transparency, the relationship between a government’s financial condition and fiscal transparency has received less attention. This study explores this relationship based on signalling, blame-avoidance, and resource hypotheses. Presuming that following the best practices in financial reporting leads to a higher degree of fiscal transparency, this study examines how a local government’s financial condition is associated with the probability of having a certification that represents the quality of financial reporting. Using a sample of municipalities in California from 2003 to 2015, we find that municipalities with a higher debt level and a lower fund balance ratio are more likely to pursue fiscal transparency in financial reporting.

Date: 2022
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DOI: 10.1080/03003930.2021.1919634

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