The Dual-Illusion of Grants-in-Aid on Central and Local Expenditures

Hong-Yih Chu

Public Choice, 2003, vol. 114, issue 3-4, 349-59

Abstract: The purpose of this paper is to clarify some misspecifications that prevail in the dual-illusion hypothesis, which is an important influential theory in fiscal illusion studies. A voter's behavior can hence be self-fulfilling, and the "dual-illusion" will not contradict each other. Our findings also support what the dual-illusion hypothesis expects--that aid raises the demand for recipient government output and reduces the demand for grantor government output. The intergovernment grants therefore do appear to be a common source of fiscal illusion. Copyright 2003 by Kluwer Academic Publishers

Date: 2003
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