Fiscal Illusion and Cyclical Government Expenditure: State Government Expenditure in the United States. (13th August 2015)

• Record Type: Journal Article
• Authors: Abbott, Andrew; Jones, Philip
• Is Part Of: Scottish journal of political economy. Volume 63:Number 2(2016)
• Page Start: 177
• Page End: 193
• Publication Date: 2015-08-13
• Subjects: Great Britain -- Economic conditions -- 1945-1964 -- Periodicals; Great Britain -- Economic conditions -- 1964-1979 -- Periodicals; Great Britain -- Economic conditions -- 1979-1997 -- Periodicals; 330.9411005
• DOI: 10.1111/sjpe.12095
• Languages: English
• ISSNs: 0036-9292

Abstract

Abstract: 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.