Fiscal illusion as an incentive for local government public expenditure efficiency: The influence of community sensitization


  • Paul Onyango-Delewa Department of Accounting and Finance, Faculty of Business and Development Studies, Gulu University, Gulu, Uganda



Community sensitization, Expenditure efficiency, Fiscal illusion, Local government


Although the effect of public expenditure efficiency on local government fiscal performance is widely-documented, what precisely explains expenditure efficiency remains largely unclear. Nevertheless, past research holds fiscal illusion as the most likely predictor and community sensitization very critical for fiscal illusion-expenditure efficiency formation. We employed fiscal illusion theory to investigate possible fiscal illusion-community sensitization-expenditure efficiency mediation in 16 districts, 6 municipalities, and 160 sub-counties of Uganda’s northern region. Over the years, Uganda; an East African country, is applauded for its fiscal federalism proficiency. But presently, its northern region is grappling a 20-year post-conflict trauma likely to compromise entity spending efficiency. Structural equation modeling results suggest that all the four fiscal illusion constructs: fiscal imbalances, political divide, tax payment bias, and fiscal sabotage, predict changes in expenditure efficiency. However, community sensitization does not mediate the fiscal illusion-expenditure efficiency linkages. Implications for these findings and possible direction for future research are discussed.


Download data is not yet available.


Afonso, A. & Fernandes, S. 2008. Assessing and explaining the relative efficiency of local government. Journal of Social Economics, 37, 1946-1979.

Blair, H. 2000. Participation and accountability at the periphery: Democratic local governance in six countries. World Development, 28(1), 21-39.

Cheung, G.W. & Lau, R.S. 2008. Testing mediation and suppression effects of latent variables: Bootstrapping with structural equation models. Organizational Research Methods, 11, 296-325.

Clemens, J. & Miran, S. 2012. Fiscal policy multipliers on sub-national government spending. American Economic Journal: Economic Policy 4(2), 46–68.

Congleton, R. D. 2001. Rational ignorance, rational voter expectations, and public policy: A discrete informational foundation for fiscal illusion. Public Choice, 107(1), 35-64.

Dell’Anno, R. & Mourao, P. 2012. Fiscal illusion around the world: An analysis using structural equation modeling approach. Public Finance Review, 40(2), 270-299.

Devas, N., Delay, S. & Hubbard, M. 2001. Revenue authorities: Are they the right vehicle for improved tax administration? Public Administration and Development, 21, 211-222.

Dollery, B. & Worthington, A. 1996. The empirical analysis of fiscal illusion. Journal of Economic Surveys, 10, 261-297.

Edwards, J. R. & Lambert, L. S. 2007. Methods for integrating moderation an mediation: A general analytical framework using moderated path analysis. Psychological Methods, 12(1), 1-22.

Ferrari, P. A. & Manzi, G. 2014. Citizens evaluate public services: A critical overview of statistical methods for analyzing user satisfaction. Journal of Economic Policy Reform, 17, 236-252.

Francis, P. & Robert, J. 2003. Balancing rural poverty reduction and citizen participation: The contradictions of Uganda’s decentralization program. World Development, 31(2), 325-337.

Gemmell, N., Morrissey, O. & Pinar, A. 2002. Fiscal illusion and political accountability: Theory and evidence from two local tax regimes in Britain. Public Choice, 110(3-4), 199-224.

Gupta, S. & Marijn, V. 2001. The efficiency of government expenditure: Experiences from Africa. Journal of Policy Modeling, 23, 433-467.

Guziejewska, B. (2016). Theoretical dimensions of fiscal illusions in local government finance. Journal of Economics, Business and Management, 4(3), 215-219.

Hooper, D., Coughlan, J. & Mullen, M. 2008. Structural equation modeling: Guidelines for determining model fit. Electronic Journal of Business Research Methods, 6, 1, 53-60.

Ketchen, D. J., Boyd, B. K. & Bergh, D. D. 2008. Research methodology in strategic Management: Past accomplishments and future challenges. Organizational Research Methods, 11, 643-658.

Mourao, P. 2006. The economics of illusion: A discussion based on fiscal illusion. Journal of Public Finance and Public Choice, 25(1), 96- 115.

Oates, W. 1991. On the nature and measurement of fiscal illusion: A survey. In Oates, W. Ed. Studies in Fiscal Federalism, Brookfield, VT, Edward Elgar.

Wagner, R. 1976. Revenue structure, fiscal illusion, and budgetary Choice. Public Choice, 25, 45-61.



2020-02-29 — Updated on 2020-02-29

How to Cite

Onyango-Delewa, P. (2020). Fiscal illusion as an incentive for local government public expenditure efficiency: The influence of community sensitization. Jurnal Perspektif Pembiayaan Dan Pembangunan Daerah, 7(4), 341 - 358.