Fiscal Transparency Ranking and Corruption: Theory and New Evidence from China

This article investigates how fiscal transparency impacts corruption through two mechanisms. The first, an internal mechanism, aligns with existing literature, highlighting that fiscal transparency reduces information asymmetry and meets public demand, thereby decreasing corruption. However, an external mechanism in China plays a significant role—prioritizing the performance ranking of fiscal transparency among provinces. To explore this relationship, we collected a unique dynamic panel dataset from 31 Chinese provinces covering the years 2006 to 2018. We applied the Generalized Method of Moments (GMM) to assess the impact of fiscal transparency rankings on corruption. Our findings suggest that rankings are more influential than absolute fiscal transparency values in reducing corruption in China. This study is among the first to examine the role of rankings in understanding the link between fiscal transparency and corruption. Moreover, we also provide a detailed analysis of the multifaceted impacts of the ranking mechanism on governmental performances.