Fiscal Transparency and the Performance of Government Financial Assets

Stock-flow adjustments are typically measured as the difference between changes in gross debt anddeficits. These are interpreted as a proxy for unexplained fiscal discrepancies, and often associatedwith a lack of fiscal transparency. However, such measures fail to capture the role of financial assetsand valuation changes and therefore do not correctly predict fiscal transparency. The purpose of thispaper is to provide a more detailed exposition of stock-flow residuals and the relationship with fiscaltransparency, highlighting government acquisition of equities and investment fund shares and theirperformance in secondary markets. The results suggest that the performance of government equityportfolios correlates with fiscal transparency to the extent that fully transparent governments areexpected to generate between 6 and 8 percent higher returns on their equity portfolios than others.These findings suggest that the performance of government assets may be a promising area for futureresearch of fiscal transparency and stock-flow residuals.