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Shadow Budgets, Fiscal Illusion and Municipal Spending: The Case of Germany

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  • Haug, Peter

Abstract

The paper investigates the existence of fiscal illusion in German municipalities with special focus on the revenues from local public enterprises. These shadow budgets tend to increase the misperception of municipal tax prices and seem to have been neglected in the literature. Therefore, an aggregated expenditure function has been estimated for all German independent cities applying an "integrated budget" approach, which means that revenues and expenditures of the core budget and the local public enterprises are combined to one single municipal budget. The estimation results suggest that a higher relative share of local public enterprise revenues might increase total per capita spending as well as spending for nonobligatory municipal goods and services. Empirical evidence for other sources of fiscal illusion is mixed but some indications for debt illusion, renter illusion or the flypaper effect could be found.

Suggested Citation

  • Haug, Peter, 2009. "Shadow Budgets, Fiscal Illusion and Municipal Spending: The Case of Germany," IWH Discussion Papers 9/2009, Halle Institute for Economic Research (IWH).
    • Handle: RePEc:zbw:iwhdps:iwh-9-09
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    Cited by:

    1. Majid Maddah & Fozieh Jeyhoon-Tabar, 2016. "Studying the Flypaper Effect in the Provinces of Iran (2000-2013)," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 20(3), pages 339-354, Summer.
    2. 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.
    3. Tony Mudrack, 2015. "Wieviel Verwaltung benötigt der Bürger?," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 35(2), pages 211-240, October.

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    More about this item

    Keywords

    fiscal illusion; municipal enterprises; panel data regression; Fiskalillusion; Kommunale Unternehmen; Paneldatenregression;
    All these keywords.

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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