Fiscal illusion at the local level: An empirical test using Australian municipal data

This paper seeks to extend the literature on the empirical analysis of fiscal illusion in two ways. First, it provides a simultaneous test of four specific hypotheses subsumed under fiscal illusion, namely the revenue-complexity, renter illusion, debt illusion and flypaper models. And second, it adds evidence drawn from the Australian institutional milieu to existing empirical work which has an overwhelming North American focus. Using 1991 data from 46 local government authorities in Tasmania, the results suggest significant support for revenue-complexity, debt illusion, and the degree of indirectness of the revenue system.