Transparency and Manipulation of Public Accounts

We study the policy choices of an incumbent politician when voters imperfectly observe aggregate spending and the incumbent’s ability. We show that total spending is decreasing in the transparency of spending, but increasing in the transparency of the incumbent’s ability. The model further provides a possible explanation of the choice of inefficient tools of redistribution, and investigates the incentives for politicians to manipulate public accounts. We show that politicians may choose inefficient and manipulable tools, but that this choice has positive welfare consequences because it leads to a reduction in spending.