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The Analysis of Fiscal Illusion and Budgetary Policy in Selected Developing Countries Using Dynamic Panel Data

Author

Listed:
  • Gilak Hakim Abadi, Mohammad Taghi

    (Associate Professor of Economics University of Mazandaran)

  • Zaroki, Shahryar

    (Assistant Professor of Economics University of Mazandaran)

  • Ezoji, Hosna

    (M.A. Student in Economics University of Mazandaran)

Abstract

Fiscal illusion is one of the effective factors on government’s budget status. Fiscal illusion refers to misinterpretation of financial parameters and overestimation and underestimation of expenditure and tax liabilities that leads to bias in budgetary decision at all levels of the government. Therefore, fiscal illusion in taxpayers confronts the politicians and the decision makers with a structure of motivations that prompts the adoption of public spending (expenditure) plans and increases the size of the government and its expenditure. The aim of this research is to investigate the effect of fiscal illusion on budgetary policy in selected developing countries between 2000 and 2014. For this purpose, we used dynamic panel data and a System Generalized Method of Moments GMM estimator. The results showed that fiscal illusion had a positive effect on budget deficit. So that the effect of fiscal illusion on budget deficit in the oil exporting countries it is higher than other countries; in the countries with high budget deficit is higher than in the countries with low budget deficit; in the countries with high fiscal illusion is higher than in the countries with low fiscal illusion, and in the high income countries is higher than other countries. Inflation has a positive effect and exchange rate as well as the degree of trade openness has negative effect on budget deficit

Suggested Citation

  • Gilak Hakim Abadi, Mohammad Taghi & Zaroki, Shahryar & Ezoji, Hosna, 2019. "The Analysis of Fiscal Illusion and Budgetary Policy in Selected Developing Countries Using Dynamic Panel Data," Quarterly Journal of Applied Theories of Economics, Faculty of Economics, Management and Business, University of Tabriz, vol. 6(1), pages 21-50, May.
    • Handle: RePEc:ris:qjatoe:0137
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    Citations

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    Cited by:

    1. Hotak, Nematullah & Kaneko, Shinji, 2022. "Fiscal illusion of the stated preferences of government officials regarding interministerial policy packages: A case study on child labor in Afghanistan," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 285-298.

    More about this item

    Keywords

    Fiscal illusion; Budget deficit; Government policy; Dynamic panel data;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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