Why asset disclosures matter for politicians


It’s now been two weeks since the Congress quietly gutted the STOCK Act by severely limiting the legislation’s reach, exempting all legislative and executive staffers from the online disclosure requirements designed to prevent insider trading by members of Congress and their staff.

So I was intrigued this week to stumble on a 2010 article written by four economists entitled “Disclosure by Politicians” in the American Economic Journal: Applied Economics. The paper, based on detailed data on financial and conflict disclosure of members of Parliament in 175 countries, comes to this conclusion: “Public disclosure is associated with better government even with various controls. The privacy of politicians may have benefits, but those may come at the cost of lower accountability.”

The authors (Simon Djankov of the World Bank, Rafael La Porta of Dartmouth’s Tuck Business School,  Florencia Lopez-De-Silanes of EDHEC Business School in France, and Andrei Shleifer of Harvard) are quick to note that they cannot tell a causal story – it’s not clear whether public disclosure of assets leads to better government (which they measure using several indexes: a corruption score, a government effectiveness score, the cost of doing business, the government expropriation risk, and political participation measures). But the two are clearly correlated.

As they note: “We cannot interpret the correlations we present causally, but they are suggestive that disclosure might be a significant ingredient of a broader system of political accountability.”

In addition to revealing this correlation, the paper also provides some valuable descriptive data of the state of asset disclosures across 175 countries. They note that of the 175 countries, only 46 require members of parliament to make all required disclosures publicly available and without conditions.

The paper does not discuss executive branch or staff-level disclosures. However, given the important role that modern legislative and executive staffs play in policy formulation and decision-making, they are in many ways extensions of the legislators and executives and there is a strong case for treating them that way.

And while the economists are careful not to make a causal inference, the power and logic of the relationship speaks for itself. That better disclosure correlates with a host of other positive measures of government efficiency is hardly surprising – less secrecy means less opportunity to get away with decisions motivated purely by personal gain.