Fiscal Illusion

Fiscal Illusion definition.

This is a concept that governments find it easy to raise tax revenues because of consumer ignorance about the way the tax system works. For example, fiscal drag is a way that more taxpayers can end up in a higher tax rate.

Public Choice theorist often argues that more needs to be done to limit the government’s ability to collect higher tax revenues otherwise government spending has a tendency to rise crowding out the more efficient private sector.

On the other hand, very high-income earners are often very skilled in avoiding tax through exploiting tax loopholes such as offshore accounts.

Also, there is often powerful political opposition to taxes even when they can increase economic efficiency – see blog: The religion of tax cuts


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