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Fiscal illusion and cyclical government expenditure: State government expenditure in the United States

Abbott, Andrew; Jones, Philip

Authors

Philip Jones

Abstract

© 2016 Scottish Economic Society. A well-established literature argues that fiscal illusion increases the level of government expenditure. This article focuses on the proposition that fiscal illusion also influences the cyclicality of government expenditure. Predictions are formed with reference to government reliance on high income elasticities of indirect tax revenues and on intergovernmental transfers. Predictions are tested with reference to the expenditures of 36 states in the United States from 1980 to 2000. Government expenditures are more likely to be procyclical when citizens systematically underestimate the cost of taxation.

Journal Article Type Article
Publication Date May 1, 2016
Journal Scottish journal of political economy
Print ISSN 0036-9292
Electronic ISSN 1467-9485
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 63
Issue 2
Pages 177-193
DOI https://doi.org/10.1111/sjpe.12095
Keywords Fiscal illusion, Flypaper effect, Procyclical public spending, Sub-central government spending
Publisher URL http://onlinelibrary.wiley.com/doi/10.1111/sjpe.12095/abstract
Additional Information Authors' accepted manuscript of article: Abbott, A. and Jones, P. (2016), Fiscal Illusion and Cyclical Government Expenditure: State Government Expenditure in the United States. Scottish Journal of Political Economy, 63: 177–193, which has been published in final form at http://dx.doi.org/10.1111/sjpe.12095.

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