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Grant Illusion, Tax Illusion, and Local Government Spending

Author

Listed:
  • Peter M. Mitias

    (Hampden-Sydney College)

  • Geoffrey K. Turnbull

    (Georgia State University)

Abstract

Tax and grant illusion are envisioned as alternative forms of fiscal illusion in the literature, with differing implications for local government spending. This article shows that tax and grant illusion, previously thought to be separate sources of fiscal illusion, are in fact interdependent. It presents a method for identifying the relevant (if any) form of fiscal illusion, exploiting the theoretical relationships to directly estimate perception parameters. The estimates reveal that county spending is affected by the traditional depiction of grant illusion rather than tax illusion.

Suggested Citation

  • Peter M. Mitias & Geoffrey K. Turnbull, 2001. "Grant Illusion, Tax Illusion, and Local Government Spending," Public Finance Review, , vol. 29(5), pages 347-368, September.
  • Handle: RePEc:sae:pubfin:v:29:y:2001:i:5:p:347-368
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    References listed on IDEAS

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    1. Gilles Saint-Paul, 1992. "Fiscal Policy in an Endogenous Growth Model," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1243-1259.
    2. Barreto, Raul A., 2000. "Endogenous corruption in a neoclassical growth model," European Economic Review, Elsevier, vol. 44(1), pages 35-60, January.
    3. Robert J. Barro & Xavier Sala-I-Martin, 1992. "Public Finance in Models of Economic Growth," Review of Economic Studies, Oxford University Press, vol. 59(4), pages 645-661.
    4. Pual Pecorino, 1992. "Rent Seeking and Growth: The Case of Growth through Human Capital Accumulation," Canadian Journal of Economics, Canadian Economics Association, vol. 25(4), pages 944-956, November.
    5. Hartwick, John M., 1992. "Endogenous growth with public education," Economics Letters, Elsevier, vol. 39(4), pages 493-497, August.
    6. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    7. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-834, August.
    8. Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June.
    9. Devereux, Michael B & Mansoorian, Arman, 1992. "International Fiscal Policy Coordination and Economic Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 249-268, May.
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    Cited by:

    1. Turnbull Geoffrey K & Salvino Robert F., 2009. "Do Broader Eminent Domain Powers Increase Government Size?," Review of Law & Economics, De Gruyter, vol. 5(1), pages 785-806, December.
    2. 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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