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.