Fiscal illusion and the demand for government expenditures in the UK

Gemmell, Norman; Morrissey, Oliver; Pinar, Abuzer

doi:10.1016/s0176-2680(99)00030-0

Cited by 28 publications

(17 citation statements)

References 12 publications

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“…The implication is that taxpayers will not correctly discern the tax-cost and incidence of goods and services provided by the government if the proportion of "less visible" taxes in tax revenue exceeds that of the "visible taxes" (Pommerehne & Schneider 1978) and if deficit finance exceeds spending. Gemmell et al (1999) and Alm & Embaye (2010) provide evidence for fiscal illusion while Ohene-Manu (2000) and Thamae (2013) do not.…”

Section: Determinants Of the Growth Of Government Spending -A Brief Smentioning

confidence: 98%

Explaining the Growth of Government Spending in Ghana

Obeng¹,

Sakyi²

2017

The Journal of Developing Areas

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Government spending is a reflection of government policy choices. However, the implications of government spending growth necessitate an understanding of the drivers of the growth of government spending. The present paper modifies the median voter model to explain the growth of government spending by introducing foreign aid, public debt, and democracy. The paper argues that these variables are important drivers of government spending for developing countries, hence a model explaining the growth of government spending of these group of countries that ignores the potential impact of foreign aid, public debt and democracy does not capture fully what determines the growth of government spending. Such a model is too simplistic and less relevant for policy purposes. The paper therefore makes use of annual time series data to determine the long-and shortrun impact of per capita income, tax share, minimum wage, population growth, foreign aid, public debt and democracy on the growth of government spending in Ghana over the period 1980-2012. The autoregressive distributed lag (ARDL) bounds test for cointegration and the error correction model (ECM) procedures were used for the estimation. Additionally, the paper provides results of generalized forecast error variance decomposition in order to determine the effect of innovations in both the dependent and independent variables on the dependent variable. The findings reveal that per capita income, tax share, population growth, minimum wage, foreign aid, public debt, and democracy are key determinants of the growth of government spending in the long-run. With the exception of minimum wage, these variables are also key determinants of the growth of government spending in the short-run. Variance decomposition results suggest innovations in per capita income and population growth generally account for the largest variations in government spending over the horizon considered. Also, innovations in foreign aid, public debt, and democracy are responsible for significant variations in government spending. The findings and policy recommendations of the paper provide vital information for policy implementation in Ghana.JEL Classifications: C22, F35, H50, H60

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Section: Determinants Of the Growth Of Government Spending -A Brief Smentioning

confidence: 98%

Explaining the Growth of Government Spending in Ghana

Obeng¹,

Sakyi²

2017

The Journal of Developing Areas

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“…Niskanen (1978) extends such empirical tests to the spending behaviour of the federal government of the USA and its aggregate money market behaviour. Recent use of the median voter model includes Gemmell et al . (1999) for the UK, Hondroyiannis and Papapetrou (2001) for Greece, Christopoulos and Tsionas (2003) for a panel of European OECD countries, and Tridimas (1985) for South Africa 2…”

Section: What Explains the Growth Of Government Spending?mentioning

confidence: 99%

Explaining the Growth of Government Spending in South Africa

Alm

Embaye

2010

South African Journal of Economics

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What determines government spending in South Africa? The paper estimates the determinants of real per capita government spending in the Republic of South Africa using annual data for the period 1960-2007, a tumultuous period during which South Africa experienced a variety of internally imposed changes ("e.g." the abolition of apartheid, changes in political institutions) and externally generated shocks ("e.g." war, oil shocks). Using multivariate cointegration techniques, we find that per capita government spending, per capita income, the tax share and the wage rate are cointegrated, a result that supports the notion that government spending is associated not only with per capita income and the true cost of government service provision as given by the wage rate but also with the fiscal illusion caused by budget deficits. We also find evidence that per capita government spending was positively affected by external shocks. These external shocks seem to play a significant role in explaining the dynamics of government spending growth. Copyright (c) 2010 The Authors. Journal compilation (c) 2010 Economic Society of South Africa.

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“…If donors are concerned with the use of aid, general conditions on aid allocation will be ineective (although monitoring processes may work, see Section 3). 8 A conventional approach is to estimate a median voter model of local government expenditure (see Gemmell et al, 1998) where the level of spending is explained by, inter alia, (median voter) income and central grants. An elasticity for grants greater than that for income would be considered evidence of ā ypaper eect.…”

Section: The Evidencementioning

confidence: 99%

Aid fungibility inAssessing Aid: red herring or true concern?

McGillivray

Morrissey

2000

J. Int. Dev.

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This paper critically reviews Assessing Aid (World Bank, 1998), focussing on Chapter 3, which looks at public sector aspects of aid, speci®cally the issue of aid fungibility. Whilst Assessing Aid's focus on public sector aspects of aid is highly appropriate, it is based on a partial review of the literature and draws conclusions not entirely supported by the literature. We argue that fungibility itself is not an important concern, and distracts attention from what donors can do to ensure that more of their aid is allocated to areas that they want to support. Insucient attention is paid to how aid impacts on public sector behaviour overall and how ®scal management can be improved.

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Fiscal illusion and the demand for government expenditures in the UK

Cited by 28 publications

References 12 publications

Explaining the Growth of Government Spending in Ghana

Explaining the Growth of Government Spending in Ghana

Explaining the Growth of Government Spending in South Africa

Aid fungibility inAssessing Aid: red herring or true concern?

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