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Rational Ignorance, Rational Voter Expectations, and Public Policy: A Discrete Informational Foundation for Fiscal Illusion

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  • Congleton, Roger D

Abstract

This paper demonstrates that rational ignorance, properly defined, allows the possibility that fiscal illusion affects policies in a democracy. The implications of rational ignorance are examined in a setting where voters are assumed to completely understand the fiscal environment and make perfect use of any information that they possess. In this setting, it is demonstrated that ignorance may be rational, manipulated, and generate biased expectations over fiscal parameters. The analysis suggests that the electoral impact of voter ignorance is reduced, but not eliminated by electoral competition. Candidate positions only affect the electoral choices of individuals who are at least partially informed about those positions. Consequently electoral competition tends to generate policies that advance the interests of relatively informed voters. This implies that election based public policies are based upon better information than one would expect based on the widespread fiscal ignorance reported in surveys. However, even in this setting, the votes cast and the policies adopted are affected by the estimated marginal rates of substitution between private and governmental services which can not be unbiased if areas of ignorance remain — even if voters make the very best use of information in their possession. The existence of rational ignorance, once carefully defined, is sufficient to generate policy relevant fiscal illusion. Copyright Kluwer Academic Publishers 2001

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Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 107 (2001)
Issue (Month): 1-2 (April)
Pages: 35-64

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Handle: RePEc:kap:pubcho:v:107:y:2001:i:1-2:p:35-64

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Cited by:
  1. MacKenzie, D.W., 2008. "The use of knowledge about society," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 678-688, September.
  2. Ivo Bischoff, 2005. "Party competition in a heterogeneous electorate: The role of dominant-issue voters," Public Choice, Springer, vol. 122(1), pages 221-243, January.
  3. Thomas A. Garrett & Russell M. Rhine, 2007. "Does government spending really crowd out charitable contributions? new time series evidence," Working Papers 2007-012, Federal Reserve Bank of St. Louis.
  4. Congleton, Roger D., 2011. "Coping with unpleasant surprises in a complex world: Is rational choice possible in a world with positive information costs?," CIW Discussion Papers 6/2011, University of Münster, Center for Interdisciplinary Economics (CIW).
  5. Sanandaji, Tino & Wallace, Björn, 2010. "Fiscal Illusion and Fiscal Obfuscation:An Empirical Study of Tax Perception in Sweden," Working Paper Series 837, Research Institute of Industrial Economics.
  6. Friedrich Heinemann, 2010. "Eine Gabe an St. Nimmerlein?- Zur zeitlichen Dimension der Schuldenbremse," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 11(3), pages 246-259, 08.
  7. Constantino Cronemberger Mendes & Maria da Conceição Sampaio de Sousa, 2004. "Demand for Locally provided Public Services Within the Median Voter`s Framework: The Case of the Brazilian Municipalities," Discussion Papers 1046, Instituto de Pesquisa Econômica Aplicada - IPEA.
  8. Dashle Kelley, 2014. "The political economy of unfunded public pension liabilities," Public Choice, Springer, vol. 158(1), pages 21-38, January.

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