IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Fiscal illusion, fiscal consolidation and government expenditure composition in the OECD: a dynamic panel data approach

  • Ismael Sanz
  • Francisco J. Velázquez

Following the present atmosphere of budgetary cuts in the OECD countries we analyze the effects of fiscal consolidation in the composition of government expenditures by functions. We modify a standard median voter demand model to incorporate a form of fiscal illusion based on the idea that voters-taxpayers may not be fully aware of the true composition of government expenditures because all types of expenditures are not equally visible. Then we exploit the panel structure of the dataset - 26 OECD countries over the period 1970-1997- by GMM estimation of a dynamic model taking into account unobserved country effects and possible endogeinity of the explanatory variables. Under the assumption that governments know the relative visibility of each type of expenditure, the pattern of the last three decades indicates that defense and the non-productive economic services are the less visible expenditures. On the other hand, education and housing seem to be the more visible expenditures.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by European Economy Group in its series European Economy Group Working Papers with number 21.

in new window

Length: 25 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:eeg:euroeg:21
Contact details of provider: Postal: Despacho 104.Pabelloon de Segundo, Facultad de Economicas. Universidad Complutense de Madrid. 28223 Pozuelo de Alarcon, Madrid
Phone: 0034913942454
Fax: 0034913942457
Web page:

More information through EDIRC

Order Information: Postal: Despacho 104.Pabelloon de Segundo, Facultad de Economicas. Universidad Complutense de Madrid. 28223 Pozuelo de Alarcon, Madrid
Web: Email:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  2. Borcherding, Thomas E & Deacon, Robert T, 1972. "The Demand for the Services of Non-Federal Governments," American Economic Review, American Economic Association, vol. 62(5), pages 891-901, December.
  3. Hamid Davoodi & Heng-fu Zou, 1996. "Fiscal Decentralization and Economic Growth: A Cross-Country Study," CEMA Working Papers 98, China Economics and Management Academy, Central University of Finance and Economics.
  4. Paul Cashin & Catherine A. Pattillo & Ratna Sahay & Paolo Mauro, 2001. "Macroeconomic Policies and Poverty Reduction: Stylized Facts and an Overview of Research," IMF Working Papers 01/135, International Monetary Fund.
  5. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  6. Congleton, Roger D & Shughart, William F, II, 1990. "The Growth of Social Security: Electoral Push or Political Pull?," Economic Inquiry, Western Economic Association International, vol. 28(1), pages 109-32, January.
  7. Baumol, William J, 1972. "Macroeconomics of Unbalanced Growth: Reply," American Economic Review, American Economic Association, vol. 62(1), pages 150, March.
  8. Bergstrom, Theodore C & Goodman, Robert P, 1973. "Private Demands for Public Goods," American Economic Review, American Economic Association, vol. 63(3), pages 280-96, June.
  9. Congleton, Roger D & Bennett, Randall W, 1995. " On the Political Economy of State Highway Expenditures: Some Evidence of the Relative Performance of Alternative Public Choice Models," Public Choice, Springer, vol. 84(1-2), pages 1-24, July.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eeg:euroeg:21. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ismael Sanz)

The email address of this maintainer does not seem to be valid anymore. Please ask Ismael Sanz to update the entry or send us the correct address

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.