Study On Fiscal Illusion And Public Goods Provision

At present,Economy development in China is experiencing the important period of transformation.In the past 20 years,China's economy is increasing rapidly and now the growth is beginning to slow down.While the fiscal expenditure of Chinese government grows faster than that of economic growth.According to Wagner's rule,the amount of public goods supplied by government has the trend to expand along with the development of society and economy.Wagner pointed out that the political,economic,social and other factors will lead to the growth of the scale of public goods supply.Empirical research based on data in China shows a variety of controversial views,some of the findings support the Wagner rules while some are not.If there are other important factors that influence the provision of public goods by government?Embarking from the perspective of the public choice theory,this article introduces the concept of fiscal illusion to examine its impact on public goods provision,trying to explain the rapid growth of public spending.This article argues that individual's would be disturbed by irrational factors,which are caused by the institutional environments.Thus the level of public goods supply will deviate from the level of efficiency,causing the expansion of public spending.Citizen's demand of public goods tends to be strengthened as a result of fiscal illusion,which is empirically composed by deficit illusions,expectation illusions and tax complexity.Thus the supply scale of public goods would be driven up.Our analysis based on the provincial panel data during 2004-2013 shows that the expenditure of public goods will be increased by deficit illusion and expectation illusions.But unexpectedly,the expenditure will decrease when tax complexity increases.To reduce the irrational impact of fiscal illusion on citizens,rules and regulations needs to be formulated to improve fiscal transparency and rising educational levels of taxpayers.