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Renters' Illusion or Savvy?

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  • Jorge Martinez- Vazquez

    (Georgia State University)

Abstract

A frequent finding in the local public finance literature is that renters are more likely to support expansions in the local budget than are homeowners. The renters' illusion hypothesis (renters are less aware of tax increases than are homeowners) has been commonly used to explain this behavior This article examines the alternative hypothesis of renters' rationality. It is argued that renters' behavior is a rational and selfish response to a fiscal environment that provides them, as a group, with larger net benefits than it doesfor homeowners. I use bond referendum data to show that, even when renters and homeowners of the same income level are assumed to receive the same net benefits, it is erroneous to interpret the stronger support by renters of the proposals, as previous literature has, as a manifestation of fiscal illusion. The article also makes an attempt to estimate different net benefits from the referendum for renters and homeowners of different income levels.

Suggested Citation

  • Jorge Martinez- Vazquez, 1983. "Renters' Illusion or Savvy?," Public Finance Review, , vol. 11(2), pages 237-247, April.
  • Handle: RePEc:sae:pubfin:v:11:y:1983:i:2:p:237-247
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    Cited by:

    1. F. Forte, 1997. "The measurement of 'fiscal burden' on GDP instead than on national net value added produced: a chapter in fiscal illusion," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 50(202), pages 337-375.
    2. Martin Baekgaard & Søren Serritzlew & Jens Blom-Hansen, 2016. "Causes of Fiscal Illusion: Lack of Information or Lack of Attention?," Public Budgeting & Finance, Wiley Blackwell, vol. 36(2), pages 26-44, June.
    3. David M. Brasington & Diane Hite, 2014. "School Choice: Supporters And Opponents," Contemporary Economic Policy, Western Economic Association International, vol. 32(1), pages 76-92, January.
    4. Oates, Wallace E., 2005. "Property taxation and local public spending: the renter effect," Journal of Urban Economics, Elsevier, vol. 57(3), pages 419-431, May.
    5. Brunner, Eric J. & Ross, Stephen L. & Simonsen, Becky K., 2015. "Homeowners, renters and the political economy of property taxation," Regional Science and Urban Economics, Elsevier, vol. 53(C), pages 38-49.
    6. Roberto Dell'Anno & Vincenzo Maria De Rosa, 2013. "The Relevance of the Theory of Fiscal Illusion. The Case of the Italian Tax System," HISTORY OF ECONOMIC THOUGHT AND POLICY, FrancoAngeli Editore, vol. 2013(2), pages 63-92.
    7. H. Spencer Banzhaf & Wallace E. Oates, 2012. "On Fiscal Illusion and Ricardian Equivalence in Local Public Finance," NBER Working Papers 18040, National Bureau of Economic Research, Inc.
    8. F. Forte, 1997. "The measurement of 'fiscal burden' on GDP instead than on national net value added produced: a chapter in fiscal illusion," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 50(202), pages 337-375.
    9. Roberto Dell’Anno & Jorge Martinez-Vazquez, 2013. "A Behavioral Local Public Finance Perspective on the Renter’s Illusion Hypothesis," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1303, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    10. Csontos, László, 1995. "Fiskális illúziók, döntéselmélet és az államháztartási rendszer reformja
      [Fiscal illusions, decision theory, and public sector reform]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1118-1135.

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