The Relationship Between Fiscal Transparency and Tax Performance: Cross-Country Evidence from 2021, 2023, and 2024

Abstract

Purpose– This study aims to examine the relationship between fiscal transparency and tax performance by conceptualizing fiscal transparency as an indicator of the quality of public financial reporting. In this context, the relationship between fiscal transparency and tax revenues as a share of gross domestic product (GDP) is investigated through cross-country comparisons for 2021, 2023, and 2024.

Design/Methodology/Approach– The study employs cross-sectional data for 2021, 2023, and 2024 covering a broad sample of countries. The relationship between fiscal transparency and tax performance is analyzed using Ordinary Least Squares (OLS) regression models, controlling for government effectiveness, statistical performance, and selected macroeconomic variables. To assess the robustness of the findings, additional estimations are conducted using an alternative dependent variable. Given the cross-sectional design, the findings are interpreted as associational rather than causal.

Findings– The empirical results indicate a positive association between fiscal transparency and tax performance; however, this association is not statistically significant in the multivariable models. Government effectiveness is positively and significantly associated with tax performance in the 2021 cross-sectional models. For 2023 tax revenues, the result is significant with conventional standard errors but becomes non-significant when HC3 robust standard errors are used; no statistically significant association is identified for 2024. Statistical performance does not retain a statistically significant independent association in the multivariable cross-sectional models.

Discussion– The findings show that the positive bivariate association between fiscal transparency and tax performance weakens after government effectiveness and other institutional factors are taken into account. The possibility that fiscal transparency operates through broader institutional channels is not directly tested by a mediation analysis and should therefore be regarded as a theoretical interpretation rather than an empirical causal finding. By comparing three cross-sectional periods, the study contributes to the literature on the institutional determinants of tax performance.