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Fiscal Illusion and the Output Expansion Hypothesis

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  • Geoffrey K. Turnbull

    (Louisiana State University)

Abstract

In the traditional certainty model of voter fiscal illusion, voters misperceive non-stochastic tax prices as being lower than they actually are and therefore allow public sector officials to expand output beyond the perfect information output. This article shows how modeling fiscal illusion as imperfect voter information or uncertainty introduces an additional risk term that offsets the certainty model illusion-output expansion effect. The fiscal illusion-output expansion hypothesis is evaluated by empirically examining the impact of fiscal structure complexity, both with respect to sources and uses of revenues, on public expenditure demand. In keeping with the uncertainty model of fiscal illusion, the data reveal little support for the illusion-output expansion hypothesis.

Suggested Citation

  • Geoffrey K. Turnbull, 1993. "Fiscal Illusion and the Output Expansion Hypothesis," Public Finance Review, , vol. 21(3), pages 305-321, July.
    • Handle: RePEc:sae:pubfin:v:21:y:1993:i:3:p:305-321
    DOI: 10.1177/109114219302100304
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    References listed on IDEAS

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    Cited by:

    1. Valeria De Bonis & Christian Thimann, 1999. "Expansionary Effects of Fiscal Consolidation: The Role of Expectations and Interest Rates In the Case of Denmark," Public Finance Review, , vol. 27(6), pages 624-647, November.

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