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Tax complexity and fiscal illusion: An empirical evaluation on of the Heyndels and Smolders approach

Dollery, Brian E. & Worthington, Andrew C. (1999) Tax complexity and fiscal illusion: An empirical evaluation on of the Heyndels and Smolders approach. Public Finance/Finances Publiques, 51(4), pp. 522-533.

Abstract

In a pioneering paper on the revenue-complexity hypothesis, Heyndels and Smolders (1995) demonstrate that the conventional employment of the Hirschman-Herfindal index (HHC) in the empirical analysis of fiscal illusion introduces an arbitrary restriction without theoretical foundation. They propose instead the more general Hannah and Kay index (HK). In this paper we extend this approach to 1991 data drawn from forty six local government areas in Tasmania, Australia. Our results are in broad agreement with those produced by Heyndels and Smolders using local government data from Flanders, Belgium. We find that the HHC may involve sizeable misspecification bias and our results provide further support for the use of HK instead of HHC.

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ID Code: 2679
Item Type: Journal Article
Keywords: Fiscal illusion, revenue complexity hypothesis, local government, intergovernmental grants
Subjects: Australian and New Zealand Standard Research Classification > STUDIES IN HUMAN SOCIETY (160000) > POLITICAL SCIENCE (160600) > Political Science not elsewhere classified (160699)
Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > APPLIED ECONOMICS (140200) > Public Economics- Taxation and Revenue (140215)
Australian and New Zealand Standard Research Classification > STUDIES IN HUMAN SOCIETY (160000) > POLICY AND ADMINISTRATION (160500) > Public Policy (160510)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Copyright Owner: Copyright 1999 H.J. Paris
Deposited On: 23 Nov 2005
Last Modified: 05 Jan 2011 23:26

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