Document Type : Research Paper

Authors

• Majid madah ¹
• Farzaneh Sadeqi ²

¹ Faculty of Semnan university

² Student of Semnan university

Abstract

Fiscal illusion refers to a systematic misperception of fiscal parameters and an associated pattern of over - and under-estimation of expenditure and taxation liabilities which makes biases in budgetary decisions at all levels of government. This paper provides the empirical analysis of the estimates of fiscal illusion index for Iranian economy over the period of 1981 to 2012 employing a structural equation model approach in framework of Multiple Indicators Multiple Causes (MIMIC). In this regard, have been used tax burden and level of education as causes and public debt, the ratio of direct tax to indirect tax and the ratio of private consumption to public debt as indicators of fiscal illusion. The results from model estimation show that tax burden is the most important factor for explanation of fiscal illusion by coefficient of (0.79). Policy makers attempt to ‘conceal’ the real tax burden by means of delusion of public debt illusion and private spending to the levels of public debt. Also size of fiscal illusion has upward trend that indicatives policy makers usually exploit fiscal illusion stratagems to distort taxpayers’ perceptions of their tax burdens.

Keywords

• Fiscal Illusion
• Tax burden
• Structural Equation Modelling (SEM)
• Multiple Indicators Multiple Causes (MIMIC)
• Iranian Economy