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Fiscal illusion, budget maximizers, and dynamic equilibrium

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  • Robert Logan
  • J. O'Brien

Abstract

This paper extends previous work in grant induced fiscal illusion in two ways. While previous models have focused on the existence of rational comparative static equilibria in the presence of illusion, this work focuses on the dynamic process by which steady state equilibria can be achieved. Furthermore, endogeneity in grants is incorporated, which necessitates the use of a budget maximizing hypothesis. However, it is shown that a broader interpretation of the budget maximizing assumption is necessary in order for this characterization to make sense in a grantor/recipient framework. Copyright Kluwer Academic Publishers 1989

Suggested Citation

  • Robert Logan & J. O'Brien, 1989. "Fiscal illusion, budget maximizers, and dynamic equilibrium," Public Choice, Springer, vol. 63(3), pages 221-235, December.
    • Handle: RePEc:kap:pubcho:v:63:y:1989:i:3:p:221-235
    DOI: 10.1007/BF00138163
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    References listed on IDEAS

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    1. John H. Beck, 1981. "Budget-Maximizing Bureaucracy and the Effects of State Aid on School Expenditures," Public Finance Review, , vol. 9(2), pages 159-182, April.
    2. Zampelli, Ernest M, 1986. "Resource Fungibility, the Flypaper Effect, and the Expenditure Impact of Grants-in-Aid," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 33-40, February.
    3. Thomas DiLorenzo, 1982. "Utility profits, fiscal illusion, and local public expenditures," Public Choice, Springer, vol. 38(3), pages 243-252, January.
    4. Werner W. Pommerehne & Friedrich Schneider*, 1978. "Fiscal Illusion, Political Institutions, And Local Public Spending," Kyklos, Wiley Blackwell, vol. 31(3), pages 381-408, August.
    5. Winer, Stanley L, 1983. "Some Evidence on the Effect of the Separation of Spending and Taxing Decisions," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 126-140, February.
    6. Mark Schneider & Byung Ji, 1987. "The flypaper effect and competition in the local market for public goods," Public Choice, Springer, vol. 54(1), pages 27-39, January.
    7. Richard Wagner, 1976. "Revenue structure, fiscal illusion, and budgetary choice," Public Choice, Springer, vol. 25(1), pages 45-61, March.
    8. William J. Hunter, 1983. "Tax Structure and Bureaucratic Bargaining," Public Finance Review, , vol. 11(3), pages 347-364, July.
    9. Logan, Robert R, 1986. "Fiscal Illusion and the Grantor Government," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1304-1318, December.
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    Cited by:

    1. Robert Logan & Yeung-Nan Shieh, 2005. "The dual illusion of grants-in-aid on central and local expenditures: A reply," Public Choice, Springer, vol. 124(3), pages 383-390, September.
    2. Majid Maddah & Fozieh Jeyhoon-Tabar, 2016. "Studying the Flypaper Effect in the Provinces of Iran (2000-2013)," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 20(3), pages 339-354, Summer.

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