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Fiscal Illusion and Cyclical Government Expenditure: State Government Expenditure in the United States
Author(s) -
Abbott Andrew,
Jones Philip
Publication year - 2016
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/sjpe.12095
Subject(s) - economics , government expenditure , government revenue , revenue , government (linguistics) , state (computer science) , fiscal policy , illusion , monetary economics , macroeconomics , tax revenue , aggregate expenditure , public economics , public finance , finance , linguistics , philosophy , algorithm , computer science , neuroscience , biology
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.