Abstract:
Increased expenditures and the government size are an important issue in public sector economics. In this regard, various theories have been developed in order to justify the reasons for the public expenditure growth, and the theories have been empirically tested. One of the outlooks explaining the government expenditures growth and the economy size is fiscal illusion approach. According to fiscal illusion theory and experiences, citizens generally do not have a correct perception of fiscal parameters systematically, so that they wrongly demand for more government expenditures. In this study, seasonal data for the period of 1994–2015 were used to test and analyze the fiscal illusion in Iran’s economy by applying autoregressive distributed lags model. Findings, obtained from the model estimation, indicate that the fiscal illusion in Iran’s economy can be explained from the variables of oil revenue and government debt in short-term and long-term, and indirect tax elasticity in short-term. Since the government uses oil revenue to finance its debt and budget deficit, the results may lead to fiscal illusion. In order to prevent fiscal illusion, using these sources should be gradually reduced as much as possible. As tax revenue itself generally does not result in fiscal illusion (based on the findings), the government should specify transparent fiscal rules by using tax revenues rather than oil revenues in order to prevent both the increasing government expenditures and fiscal fluctuations. According to the results, government should use more direct tax revenue. As government’s direct tax revenue, unlike other sources of revenue, does not create fiscal illusions, it does not result in excessive demand by citizens for public expenditures.
Machine summary:
The Tax and Petroleum Revenue Effect on Iran’s Public Expenditures (1994–2015), Employing Fiscal Illusion Approach Majid Maddah*1, Fozieh Jeyhoon-Tabar2 Accepted: 2017, October 12 Received: 2018, January 30 Abstract ncreased expenditures and the government size are an important issue inpublic sector economics.
Findings,obtained from the model estimation, indicate that the fiscal illusion in Iran’seconomy can be explained from the variables of oil revenue and governmentdebt in short-term and long-term, and indirect tax elasticity in short-term.
This study aims to analyze the impact of government revenue resources on public sector expenditures in Iran’s economy based on fiscal illusion theory.
taxes Carroll 50 US Panel Revenue Per capita Average monthly Significant and(2005) states, Pooled time– series, cross– sectional (1992– 2000), corrected OLS diversification expenditure, tax visibility salaries, per capita personal, tax burden, sales tax rate, gas tax rate, citizen ideology, government ideology, population, positive impact of tax burden on revenue diversification republican governor, poverty rate, homeownership, tax limitation Landers Columbus, IV School district School district Average teacher The resultsand Byrnes Ohio, performance debt liability salary, teacher support the debt(2000) metropolita n (1992– 1996) and unit house price (Measured as binary variable) training level, pupil-teacher ratio, expenditure per pupil, low income enrollment, college prep enrollment, school district tax illusion hypothesis.
In this paper, the effect of government revenue sources on public expenditures in Iran’s economy was examined by using seasonal data for the period of 1994–2015, based on the fiscal illusion theory.