The Importance of Fiscal Illusion in Public Choice

Abstract

This article intends to stress out a fiscal matter, firstly explored by Puviani, known as
fiscal illusion. This a case of observing and reacting upon key fiscal parameters, which
could ultimately impose distortion of fiscal choices made by the electorate. There are
numerous elements like tax structure, public expenditure, that are largely concealed so
the voters don’t have the true information about the cost of providing certain public
services. In the countries with high public expenditure there is a high rate of indirect
taxes present, because they obscure the tax payer perception about the amount of tax
paid. This is how they gather larger amount of tax revenues which are used for
financing public sector. The high percentage of indirect taxes in public revenues affects
the demand for public services, because the benefits are clear as day but not their
expenses. That kind of misperception of public sector expenditures upon existence of
indirect taxes is clear example of fiscal illusion. If the level of fiscal illusion is high, then
the citizens are not in position to clearly see the government expenses which
complicates the control of public money usage. The stimulus for money control is
lower, because expenses are considered lower then they really are.