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Towards a Fiscal Illusion Index

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  • Mourão, Paulo

Abstract

This paper presents an index of Fiscal Illusion for 68 democratic countries from 1960 to 2006. The studied Fiscal Illusion is the one related to a wrong perception of the budget aggregates according to the voters and taxpayers’ perspectives. In the construction of the index, methodological issues were carefully taken into account. The results obtained reveal that fiscal illusion varies greatly around the world. Countries such as Mali, Pakistan, Russia and Sri Lanka have the highest average values over the time period considered; while Austria, Luxembourg, Netherlands and New Zealand have the lowest. Regarding the time dimension, between 1980 and 1995 there was a significant decrease in the average value of the index across countries, suggesting a reduction in the adoption of fiscal illusion measures during this period. After 1995, the index remained stable in most of the countries.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9760.

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Date of creation: Nov 2007
Date of revision: 28 Jul 2008
Handle: RePEc:pra:mprapa:9760

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Keywords: Fiscal Illusion; Indexes/Indicators; Democracy;

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  1. 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.
  2. Ricardo Hausmann & Alberto Alesina & Rudolf Hommes & Ernesto H. Stein, 1998. "Budget Institutions and Fiscal Performance in Latin America," Research Department Publications 4160, Inter-American Development Bank, Research Department.
  3. Giuseppe Nicoletti & Stefano Scarpetta & Olivier Boylaud, 2000. "Summary Indicators of Product Market Regulation with an Extension to Employment Protection Legislation," OECD Economics Department Working Papers 226, OECD Publishing.
  4. International Monetary Fund, 2005. "Fiscal Transparency and Economic Outcomes," IMF Working Papers 05/225, International Monetary Fund.
  5. Ismael Sanz & Francisco J. Velázquez, 2003. "Fiscal illusion, fiscal consolidation and government expenditure composition in the OECD: a dynamic panel data approach," European Economy Group Working Papers 21, European Economy Group.
  6. Michael Freudenberg, 2003. "Composite Indicators of Country Performance: A Critical Assessment," OECD Science, Technology and Industry Working Papers 2003/16, OECD Publishing.
  7. Eusepi, Giuseppe, 2006. "Public finance and welfare: From the ignorance of the veil to the veil of ignorance," Journal of Economic Behavior & Organization, Elsevier, vol. 59(4), pages 460-477, April.
  8. Adi Brender & Allan Drazen, 2004. "Political Budget Cycles in New versus Established Democracies," NBER Working Papers 10539, National Bureau of Economic Research, Inc.
  9. Frank Jensen & Niels Vestergaard, 1999. "Regulation of Renewable Resources in Federal Systems: The Case of Fishery in th EU," Working Papers 3/99, University of Southern Denmark, Department of Environmental and Business Economics.
  10. Eugeni Garcia Alegre & Guillem López, 2004. "The effects of poor financial information systems on the long term sustainability of local public services. Empirical evidence from the Catalan Municipalities," Economics Working Papers 746, Department of Economics and Business, Universitat Pompeu Fabra.
  11. Eugeni Garcia Alegre & Guillem López, 2004. "The effects of poor financial information systems on the long term sustainability of local public services. Empirical evidence from the Catalan Municipalities," Working Papers, Research Center on Health and Economics 746, Department of Economics and Business, Universitat Pompeu Fabra.
  12. Kerstin Bernoth & Guntram Wolff, 2006. "Fool the markets? Creative accounting, fiscal transparency and sovereign risk premia," DNB Working Papers 103, Netherlands Central Bank, Research Department.
  13. Alt, James E. & Lassen, David Dreyer, 2006. "Fiscal transparency, political parties, and debt in OECD countries," European Economic Review, Elsevier, vol. 50(6), pages 1403-1439, August.
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