Fiscal Illusion and Political Accountability: Theory and Evidence from Two Local Tax Regimes in Britain
AbstractLocal tax reform in Britain in 1993 (reinstating a property tax) may have reversed some intended fiscal illusion reducing,and "accountability" improving, features of the poll tax (itself a reform introduced in 1990 with the specific aim of promoting accountability). We formalize these features within a median voter model of the demand for local public expenditure that distinguishes between accountability and fiscal illusion effects. The model shows that a priori accountability effects on expenditures are ambiguous. Available data for England and Wales are used to test the model. We find strong evidence of grant illusion (the fly paper effect), similar across tax regimes, with evidence of renter illusion and of less accountability under the property tax. The degree of local income inequality appears to affect expenditure levels only with the property tax. Copyright 2002 by Kluwer Academic Publishers
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Bibliographic InfoArticle provided by Springer in its journal Public Choice.
Volume (Year): 110 (2002)
Issue (Month): 3-4 (March)
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Web page: http://www.springerlink.com/link.asp?id=100332
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- José Manuel Cruz, 2004. "Empirical analysis of the influence of voters and politicians in the public choice of Portuguese municipalities universidade portucalense," ERSA conference papers ersa04p367, European Regional Science Association.
- Elena Gennari & Giovanna Messina, 2012. "How sticky are local expenditures in Italy? Assessing the relevance of the “flypaper effect” through municipal data," Temi di discussione (Economic working papers) 844, Bank of Italy, Economic Research and International Relations Area.
- 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.
- Eckel, Catherine C. & Grossman, Philip J. & Johnston, Rachel M., 2005. "An experimental test of the crowding out hypothesis," Journal of Public Economics, Elsevier, vol. 89(8), pages 1543-1560, August.
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