When do governments “go dark”? Evidence on governments’ disclosure choices in periods of uncertainty

We examine the direction in which governments adjust their guidance intensity when the fiscal outlook becomes uncertain. Because uncertainty makes governments’ expectations less precise but also more valuable to investors, how governments’ guidance responds to it is an open question. We focus on the disclosure regime created by the Stability and Growth Pact of the EU. Looking at government reporting to a supranational institution gives us the unique opportunity to observe heterogeneity in disclosure within a common set of disclosure rules. We show that, on average, governments respond to uncertainty by reducing guidance on debt-related items. In turn, this effect is substantially dampened by both governments’ need for capital and investors’ need for information. We also provide evidence that governments that do not reduce guidance when subject to uncertainty shocks, appear to do so for opportunistic reasons. Their guidance is less timely, less accurate and more optimistic. Collectively, the evidence indicates that observed levels of transparency may be a misleading measure of governments’ willingness to disclose informative guidance, while pointing to an unexpected consequence of imposing reporting mandates on governments.