Analysis of Evidences and Causes of the Flypaper Effect and Fiscal Illusion in the Brazilian States and Municipalities

摘要

The fiscal illusion theory refers to the phenomenon by which rulers create distortions about taxpayers' fiscal reality, making it difficult to perceive the price of public services, through mechanisms such as use of government transfers to increase spending rather than tax reduction (flypaper effect). The research aimed to analyze the evidence of fiscal illusion in Brazil, based on the studies of Araujo (2014) and Araujo and Siqueira (2016) through the median voter model. The present paper uses data from 2004 to 2015 for Brazilian states. With the use of a fixed-regression model with panel data and the use of robust errors, evidence is found of the flypaper effect and partly of the illusion caused by the complexity of revenue.