Fiscal Illusion and Democratic Maturity: Exploring the Roles of Information, Trust, and Participation in Citizens’ Perception ff Taxes and Spending

Abstract

The concept of fiscal illusion is a paradox in pub­lic finance; that is, people believe that it is possible to expand government services despite decreased revenues. Evidence suggests that fiscal illusion re­lates to democratic maturity, considering the lack of transparency, trust, and participation in developing countries. Accordingly, an important research ques­tion arises: What factors remedy such mispercep­tions of fiscal situations? This study explores these factors through a survey experiment. The empirical evidence indicates that citizens’ fiscal illusion de­creases when transparency in the fiscal process is ensured through information, trust, and participa­tion. This research contributes to the field of public administration by identifying the factors that reduce fiscal illusion in public finance management and providing important policy implications, namely, that developing countries should make more efforts to reduce citizens’ illusion regarding public spending for sustainable growth by transparently disclosing financial information and ensuring trust in govern­ment and civic participation.

Keywords

• fiscal illusion
• democratic maturity
• information
• trust
• participation.