The Determinants of Local Government's Financial Transparency

This paper contributes to the scarce literature on government transparency by analysing the impact of political and socio-economic factors on municipal financial transparency. Our sample covers the 100 largest Spanish municipalities in 2008. Compulsory publicity and transparency are key to public management (rule-of-law theory). Our data show that Spanish municipalities are providing financial information beyond the legal requirements, thus exceeding the compulsory disclosures required by the rule-of-law theory. The more taxes and more transfers per capita, the more financial information is disclosed and, accordingly, the higher the transparency is. Therefore the municipalities are not taking advantage of fiscal illusion or principal-agent effects, since they are not concealing higher levels of taxes and transfers from citizens. Furthermore, left-wing parties are more transparent than right-wing ones. Finally, the population also has a positive effect on the achievement of financial transparency.