Comparative fiscal illusion: A fiscal illusion index for the European Union

Dell'Anno, Roberto and Dollery, Brian (2012): Comparative fiscal illusion: A fiscal illusion index for the European Union.

Abstract

This paper provides an empirical analysis of fiscal illusion by estimating an index of fiscal illusion for 28 European countries over the period 1995–2008 employing a structural equation approach. Using MIMIC models, the paper investigates the main indicators of fiscal illusion and develops an index of fiscal illusion. It concludes that the chief deterninants for the deployment of fiscal illusion strategies are the share of self-employment on total employment, the educational level of citizens, and the size of tax burden. At the same time, policy makers attempt to ‘conceal’ the real tax burden by means of debt illusion, fiscal drag, wage withholding taxes, as well as taxes on labour.

• Item Type: MPRA Paper
• Language: English
• Keywords: Fiscal illusion; Financial illusion; MIMIC model; European countries
• Subjects: H - Public Economics > H8 - Miscellaneous Issues; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O52 - Europe; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents

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