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Arithmetic visibility estimates for OECD countries with three government levels.

Article Excerpt
The importance of fiscal visibility has been well known for a long time but attempts to quantify it by taking the internal structure of every type of revenue and expenditure in a fiscal system into consideration are recent. Indicators used until now rest on structural parameters combined in a multiplicative way with a estimate always resulting in at least one of such factors being null. An alternative way to measure fiscal visibility consists of combining parametric values in an additive instead of a multiplicative form. Calculations can then show estimates which are much more sensitive to the initial values. The aim of this contribution is to present new additive indicators that are applied to several territorial government levels in Australia, Austria, Canada, Germany, Spain, Switzerland, and the U. S. Comparisons, conclusions, and comments are offered for general development. (JEL P16)

Introduction

An insufficient fiscal visibility (1) of burden and benefit of public revenue and expenditure can introduce important biases in both the size and pattern of government budgets [Wagner, 1976; Pommerehne and Scheneider, 1978; Oates, 1988]. That is why it is important to measure and raise such visibility.

Initial indicators were defined to take the influence on fiscal visibility of internal structures of types of public revenue and expenditure into account. First estimations were made for several territorial government levels of EU member countries [Roig-Alonso, 1998, 2000, 2001]. But because of the multiplicative combination of relevant parameters used for such indicators, a estimate will always result as anyone of such parameters was also 0.

An alternative to measure visibility of burden and benefit of a public budget can consist of combining these parameters in an additive instead of a multiplicative form. Then, a null parametric value will not necessarily result in a estimate, and calculations can show higher final values that are much more sensitive to values of other non-null parameters.

This article is based on a recent research project carried out at the Public Finance and Public Sector Economics Research Unit of the University of Valencia. It presents new additive (instead of multiplicative) indicators that are applied to the several central, intermediate, and local territorial governmental levels of OECD member countries from data and qualitative information provided by the International Monetary Fund (IMF). Additionally, first alternative estimates of fiscal visibility are made for the several territorial governmental levels of Australia, Austria, Canada, Germany, Spain, Switzerland, and the U.S., using IMF data. Conclusions and comments are offered at the end of the paper.

An Index of Burden Visibility of Total Public Revenue

In general, for every level, L, of territorial public administrations of an economy, a visibility index, [V.sub.L.sup.R], of its total public revenue, R, was defined in such a way that [less than or equal to] [V.sub.L.sup.R] [less than or equal to] 1, based upon:

[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII],

where: n = number of types of public revenue R for level L of territorial public administrations; and [x.sup.R.sub.iL] = relative financial weight of public revenue R of type i for level L of territorial public administrations, with i = 1, 2, ..., n. Thus,

[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII],

where: [GF.sup.R.sub.iL] = absolute quantity of public revenue R of type i for level L of territorial public administrations; and [Y.sup.R.sub.iL] visibility or perceptibility (for the policy intended or legal-revenue provider)...

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