Budget Transparency of Local Governments: The Political Economy of City and Municipality Budgets in Croatia

Abstract

This paper investigates the budget transparency of Croatian
local governments, i.e., the relationship between the open local
budget index (OLBI) and a set of economic, political and socio-
-cultural variables. It uses a unique panel database of all 128
cities and 428 municipalities in 2015 and 2016. To examine the
differences among the samples and years and to determine
whether the different samples have different driving forces, a
regression analysis based on a Poisson distribution is used. In
the total (cities and municipalities) and city samples, average
income per capita (p.c.) is the most important determinant of the
OLBI, which confirms Ferejohn's principal-agent model. At the
municipality level, the findings indicate that political variables
(ideology and political competition) are the factors that play the
most important role, which is in line with the principal-agent and
legitimacy theories. Findings point out to the necessity of
reconsidering the number of local governments, particularly
smaller ones lacking the capacity for maintaining basic budget
transparency standards and to motivate citizens to demand and
local governments to offer more budget transparency.