Law & Economics Working Papers
Budget procedures are often adopted or changed to improve “transparency” in budgeting. This phrase can refer to two different, although related, stages of the budget process. First, transparency may refer to the outputs of budgeting; here the ideal is that the tradeoffs inherent in a budget should be made clear, salient and understandable to policy makers and the public. Second, transparency may refer to the inputs of budgeting; here the ideal is to ensure that the decision-making process is itself conducted in public. This paper focuses on the second concept of budget transparency—the degree to which important budgeting decisions are made in public and in open deliberation and debate. We identify an ideal transparency regime for the federal budget process, one that optimizes the benefits and costs of transparency and opacity. Two institutional-design tradeoffs are critical. First, transparency allows the public, and others who bring information to the attention of the public such as the media and challengers, to monitor elected officials and hold them accountable. However, it also allows interest groups, whose interests may not be congruent with the larger public interest, to monitor legislators. Because interest groups are better organized than the public, transparency may unduly empower those representing minority interests at the expense of overall welfare. We propose some techniques of transparency—such as delayed disclosure, which provides information some period of time after the budgeting decision has been made—that empower the voters while reducing the ability of interest groups to influence outcomes. Second, we discuss the effect of transparency on legislative arguing and legislative bargaining. Transparency deters self-interested bargains, but can also encourage posturing and inflexibility that produces bad deliberation. We propose that opacity is generally beneficial at earlier stages of the budget process, as where committees develop the macro-level allocations embodied in the concurrent budget resolution, while transparency is desirable at later stages of the process, when committees engage in concrete bargaining. Finally, we discuss various institutional constraints and second-best problems at the implementation stage, including the question whether politics will block adoption of the optimal transparency framework, the risk that transparency will be circumvented by collusion, and the risk that opacity will be undermined by leaks. Although these problems are serious, we conclude that none is insuperable.
Elizabeth Garrett & Adrian Vermeule, "Transparency in the Budget Process" (John M. Olin Program in Law and Economics Working Paper No. 278, 2006).