The overspending and flypaper effects of fiscal illusion: Theory and empirical evidence

This paper broadens the notion of fiscal illusion to include imperfect information where voters are unsure about how much they must pay for additional services or where they are unsure about the services received in return for higher taxes. It shows how each type of voter imperfect information has different effects on public spending and modifies the overspending and flypaper effects predicted by the certainty model. An empirical study of municipal expenditures provides support for the broader notion of fiscal illusion as imperfect information. (C) 1998 Academic Press.