When do governments “go dark”? Evidence on governments’ guidance transparency in presence of a mandatory disclosure regime

We examine if governments adjust their level of guidance intensity depending on the precision of their expectations about the medium term fiscal outlook. We exploit a mandatory disclosure regime that gives us the unique opportunity to observe heterogeneity in both guidance intensity and expectation precision. We find that governments reduce guidance intensity as expectation precision declines. We further document that these effects are driven by governments whose guidance turns out to be both accurate and conservative. This negative effect is dampened by the strength of demands for information stemming from investors, institutions and citizens. The evidence further shows that those governments that do not change their guidance intensity in response to noisy expectations and strong demands for information are those that issue inaccurate and optimistic guidance. The existence of a trade-off between guidance intensity and accuracy supports the idea that governments often wish their guidance to be informative. Moreover, it indicates that a mandatory fiscal guidance regime may have unintended effects.