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

Abbott, Andrew; Jones, Philip

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.

Citation

Abbott, A., & Jones, P. (2016). Fiscal illusion and cyclical government expenditure: State government expenditure in the United States. Scottish journal of political economy, 63(2), 177-193. https://doi.org/10.1111/sjpe.12095

• Journal Article Type: Article
• Acceptance Date: May 26, 2015
• Online Publication Date: Aug 13, 2015
• Publication Date: May 1, 2016
• Deposit Date: Aug 25, 2015
• Publicly Available Date: Aug 25, 2015
• Journal: Scottish journal of political economy
• Print ISSN: 0036-9292
• 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
• Public URL: https://hull-repository.worktribe.com/output/377921
• 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.
• Contract Date: Aug 25, 2015