IIARD International Institute of Academic Research and Development

Journal of Accounting and Financial Management (JAFM )

E-ISSN 2504-8856
P-ISSN 2695-2211
VOL. 9 NO. 3 2023
DOI: https://doi.org/10.56201/jafm.v9.no3.2023.pg129.149

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Relevance of Fiscal Illusion Proposition and Wagner Theory to Nigerian Budget Performance (Nexus among Fiscal Illusion Index, Recurrent and Capital Budget)

EFUNTADE, Alani Olusegun, FCIB, FCA, EFUNTADE, Olubunmi Omotayo, PhD

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Abstract

This paper presents an empirical analysis of the consequences of fiscal illusion for public spending outcomes in a developing country context, specifically Nigeria, over the period 1993- 2022. The presence of fiscal illusion and its main indicators are identified (measured here through deficit illusion, and degree of tax visibility, where the real burden of taxation is underrepresented to the citizen-voter). We find that the Nigerian economy reveals significant fiscal illusion as measured in above terms. Also, fiscal illusion is found to have major and positive impact on the demand for government capital expenditure and government recurrent expenditure and consequently, on real government expenditure in the economy over the chosen time period. This work demonstrated that the controversial question involving the role of fiscal illusion practices on public finances is not recent, but can be thought of as deriving from the discussion invoked by Puviani (1903) and substantially enriched by Buchanan (1960). In spite of the fact that the ‘Fiscal Illusion’ School of Buchanan and Wagner (1977) identifies higher levels of fiscal illusion promoting increasing increments in the size of the public sector, this work developed a model that predicts higher levels of fiscal illusion also decrease national economic growth rates. The government additionally creates the false illusion that public expenditures are lower than they are in reality and for this reason it is easier to maintain the illusive fiscal discipline. On the one hand, the government may cut expenditures in an ostensible way and step towards reducing the budget deficit. On the other hand, without additional procedures the government may introduce new public expenditures outside the budget and, consequently, without any special control of the law-making arm of government.

keywords:

Capital budget, fiscal illusion proposition, recurrent budget and Wagner theory

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References:

Abatemarco, A., & Dell‘Anno, R. (2020). Fiscal illusion and progressive taxation with
retrospective voting. Economic and Political Studies, 8 (2),246-273.

Adepeju, S. (2018). Government spending on infrastructure and economic growth in Nigeria.
Economic Research-Ekonomska Istraživanja,31(1),997-1014.

Afonso, W. B. (2014). Fiscal illusion in state and local finance- A hindrance to transparency.
Sage Journals,46(3),219-228.

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