THE IMPACT OF BUDGET TRANSPARENCY ON BUDGET CREDIBILITY: EVIDENCE FROM CROATIAN CITIES

Abstract

This paper examines how budget transparency affects budget credibility, i.e., how it affects budget current revenue/expenditure deviations. Specifically, the first objective is to describe how budget transparency affects budget credibility or accuracy of the enacted budget at the local level. The second is to examine if and in which direction budget deviations are systematically biased. The third is to link the accuracy of enacted budgets with political budget cycles’ literature. Budget transparency is measured by the number of published key budget documents on the City’s official websites. Budget credibility is measured by the difference between the planned amount minus the actual amount divided by the actual amount. Our sample comprises balanced panel data for 120 Croatian cities during the period 2016-2021 and system GMM method was used. The findings indicate that cities with greater budget transparency typically underestimate their revenues and overestimate their expenditures. Less transparent cities, on the other hand, frequently overestimate their revenues and underestimate their expenditures, yet ultimately spend more than intended.