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State Expenditure and Fiscal Illusion in Australia: A Test of the Revenue Complexity, Revenue Elasticity and Flypaper Hypotheses

Author

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  • Dollery, Brian E.

    (University of New England)

  • Worthington, Andrew C.

    (University of New England)

Abstract

Despite the federal structure of its constitution, no empirical study of fiscal illusion at the level of state expenditure has yet been undertaken in Australia. This paper seeks to go at least some way towards remedying the omission by subjecting the revenue-complexity, revenue-elasticity and flypaper hypotheses to pooled time-series, cross-sectional analysis of seven Australian states and territories for the period 1982 to 1992. The results obtained indicate that some support is provided for the revenue-complexity hypothesis, strong evidence exists for the flypaper effect, and virtually no empirical backing was found for the revenue-elasticity hypothesis. These results correspond with earlier work elsewhere on fiscal illusion at the level of the state.

Suggested Citation

  • Dollery, Brian E. & Worthington, Andrew C., 1995. "State Expenditure and Fiscal Illusion in Australia: A Test of the Revenue Complexity, Revenue Elasticity and Flypaper Hypotheses," Economic Analysis and Policy, Elsevier, vol. 25(2), pages 125-140, September.
    • Handle: RePEc:eee:ecanpo:v:25:y:1995:i:2:p:125-140
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    Cited by:

    1. Pedro Henrique Martins Prado & Cleomar Gomes da Silva, 2020. "Wagner’s Law and Fiscal Illusion: An analysis of state government finances in Brazil," Review of Development Economics, Wiley Blackwell, vol. 24(2), pages 628-643, May.
    2. Brian Dollery & Andrew Worthington, 1999. "Fiscal Illusion at the Local Level: An Empirical Test Using Australian Municipal Data," The Economic Record, The Economic Society of Australia, vol. 75(1), pages 37-48, March.
    3. Hotak, Nematullah & Kaneko, Shinji, 2022. "Fiscal illusion of the stated preferences of government officials regarding interministerial policy packages: A case study on child labor in Afghanistan," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 285-298.
    4. Sebastian Langer & Artem Korzhenevych, 2019. "Equalization Transfers and the Pattern of Municipal Spending: An Investigation of the Flypaper Effect in Germany," Annals of Economics and Finance, Society for AEF, vol. 20(2), pages 737-765, November.
    5. Korzhenevych, Artem & Langer, Sebastian, 2016. "The Flypaper Effect in Germany: An East-West Comparison," CEPIE Working Papers 10/16, Technische Universität Dresden, Center of Public and International Economics (CEPIE).

    More about this item

    JEL classification:

    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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