Testing for Fiscal Illusion in Wisconsin Towns

Abstract

Fiscal illusion, a theory of the impact of government revenue structures on voter decision-making, has been studied extensively by economists and political scientists; however, empirical verification has been limited. This study builds on Lowery's (1987a) work by examining the relationship between suggested illusionary revenues and measures of electoral stress. Here, electoral stress is measured as constituent contacting-one possible measure of voter influence-for local government officials up for re-election. Using a combination of survey data from over 1,000 Wisconsin town board members, audited fiscal data and U.S. Census data, we were able to test for fiscal illusion. Our findings show that when looking at five revenue types (conditional grants, unconditional grants, property taxes, user fees and charges, and debt service) there is some evidence suggesting officials seeking another term in office will tend to support fees and charges as a revenue structure over other structures. Overall, there is little consistent evidence suggesting that elected officials are manipulating revenue structures for electoral gain. Revenue structures are mostly influenced by social and economic factors, such as median household income, population changes, and per capita property valuation.

Examining Small Town Revenues: To What Extent Are They Diversified?

“…There is no known study that examines revenue diversification among town governments. A related analysis of town governments found no evidence of fiscal illusion among Wisconsin towns (Maher and Johnson 2008). Although the study did consider town governments' use of alternative “illusionary” revenue sources, the authors intentionally did not measure or examine revenue diversification among the Wisconsin towns.…”

Public Management in Rural Local Governments: An Assessment of Institutional Differences and Implications

“…and in assessments of government structure(Carr and Karuppusamy 2010;Nollenberger and Simmons 2016). Local governments in Wisconsin, in particular, have been the focus of several additional analyses(Diaz and Green 2001;Helpap 2017;Johnson and Ihrke 2004;Maher and Johnson 2008).…”

An Exploration of Revenue Structure Characteristics in Rural Municipalities

“…The third dependent variable is the share of total revenue from IGA. This variable captures the extent to which municipalities are self-sufficient with more fiscally autonomous jurisdictions relying less on aid from the county, state, and federal government than more fiscally dependent jurisdictions (Maher and Johnson 2008). While the state of Colorado disburses a few of its aid programs on a per capita basis, most IGA from the state (and from the federal government through the state) is through competitive grants administered by the Department of Local Government Affairs for eligible capital improvements or public services.…”