There is a close relationship between FISCAL ILLUSION and shadow economy, as the existence of shadow economy provides the possibility of creating the FISCAL ILLUSION for the government. In the FISCAL ILLUSION, due to taxpayer's misperception of tax burden, public goods and services demand raise which finally leads to the positive growth of government spending. In this paper, the relationship between FISCAL ILLUSION and shadow economy has been studied within the framework of Linear Structural Relationship pattern (LISREL) for Iran in the period of 1357 to 1391. The results of the LISREL model estimation show first, shadow economy has a significant and positive effect on FISCAL ILLUSION in Iran; this finding indicates that the existence of expanded shadow economy in Iran creates the positive growth in FISCAL ILLUSION, which increases government’s debt. Second, the tax burden is the most important explanatory variable of FISCAL ILLUSION size in Iran that is used by the government in order to create misperception of the taxpayer.

According to public choice theory, the features of the tax structure affect the voters' perceptions of the tax burden, so that they pay more for public goods. Of course this extra payment by the voters is lower than the estimated one. Government expenditures may be analysed on the basis of FISCAL ILLUSION. In this study, we have tried to explore the relationship between tax and public expenditures in Iran's economy during 1981-2011. The theoretical model used here explains the standard median voter model with FISCAL ILLUSION resulted from less visible taxes. To evaluate this model we applied ARDL and ECM models. The Results indicate that FISCAL ILLUSION comes out of high share of oil revenues in Iran's economy (which is an intergenerational taxation). So, the invisibility of tax doesn't mean that government expenditures should increase.

FISCAL ILLUSION refers to a systematic misperception of FISCAL parameters and an associated pattern of over- and underestimation of expenditure and taxation liabilities which makes biases in budgetary decisions at all levels of government. This paper provides the empirical analysis of the estimates of FISCAL ILLUSION index for Iranian economy over the period of 1981 to 2012 employing a structural equation model approach in framework of Multiple Indicators-Multiple Causes (MIMIC). To this end, we have used tax burden and level of education as cause variables and public debt, the ratio of direct tax to indirect tax and the ratio of private consumption to public debt as indicators of FISCAL ILLUSION. The results show that tax burden with a coefficient of 0.79 is the most important factor for explanation of FISCAL ILLUSION. Policy makers attempt to ‘conceal’ the real tax burden by means of delusion of public debt and of private spending to the levels of public debt. Further, size of FISCAL ILLUSION has upward trend that indicates policy makers usually exploit FISCAL ILLUSION stratagems to distort taxpayers’ perceptions of their tax burdens.

Economic growth is considered as one of the most important goals of the economy and has an undeniable effect on improving the welfare of the community. Knowing the factors affecting economic growth has always been an issue for economists. Several factors such as promoting labor force productivity, capital accumulation, government's expenditures, technological progress, as well as FISCAL ILLUSIONs affect economic growth. FISCAL ILLUSION is the source of distrust between the government and the people, which influences the economic growth through the channel of state budget and tax revenues. The purpose of this study is to investigate the relationship between FISCAL ILLUSIONs and economic growth in Iran during the period of 1978-2014. The study consists of two steps: firstly, the FISCAL ILLUSIONs in the context of the model of LISRE software (Linear Structural Relationships) are determined and measured by the data given from the Central Bank and the Statistics Center of Iran during the years of 1978-2014. The results indicate that the most important determinant of the size of FISCAL ILLUSIONs in Iran is the tax burden that policy makers try to conceal by creating government debt ILLUSIONs and ILLUSIONs of private sector expenditures on public debt levels. In the second step, after estimating the FISCAL ILLUSION, its relationship with economic growth has been investigated using the ARDL model. The findings of the test show that FISCAL ILLUSIONs have a negative and significant effect on the economic growth in Iran in both short and long terms.

The study of the factors influencing the increase of government expenditures is one of the main issues of public finance. Many theories have been proposed in this regard and experimentally tested in different countries. One of these theories is that of FISCAL ILLUSION that links the increase in the government costs to citizens’ lack of true perception about FISCAL variables. The sources of FISCAL ILLUSION are usually described with five main hypotheses. One of them is the hypothesis of the complexity of the structure of government revenues. According to this hypothesis, the complexity of the revenue system makes citizens unable to correctly determine the tax price of public goods. This makes taxpayers underestimate the tax burden for public programs and, thus, increases public spending. In this research, the hypothesis of the complexity of the government revenue structure in Iran's economy during the years 1982-2016 was tested. To this end, an experimental model was specified according to the conditions of the Iranian economy. The proposed model was estimated using Autoregressive Distributed Lags (ARDL) and Error Correction Model (ECM) methods. According to the research findings, in the Iranian economy, taxpayers do not have the FISCAL ILLUSION of the complexity of the tax structure, and the FISCAL ILLUSION of intangible taxes is not empirically validated. The results also show that, due to oil revenues, people in the society have a high demand for government spending, and the tax system complexity is not a reason for the increased demand for public expenditures in Iran’ s economy.

FISCAL ILLUSION is one of the effective factors on government’ s budget status. FISCAL ILLUSION refers to misinterpretation of financial parameters and overestimation and underestimation of expenditure and tax liabilities that leads to bias in budgetary decision at all levels of the government. Therefore, FISCAL ILLUSION in taxpayers confronts the politicians and the decision makers with a structure of motivations that prompts the adoption of public spending (expenditure) plans and increases the size of the government and its expenditure. The aim of this research is to investigate the effect of FISCAL ILLUSION on budgetary policy in selected developing countries between 2000 and 2014. For this purpose, we used dynamic panel data and a System Generalized Method of Moments GMM estimator. The results showed that FISCAL ILLUSION had a positive effect on budget deficit. So that the effect of FISCAL ILLUSION on budget deficit in the oil exporting countries it is higher than other countries; in the countries with high budget deficit is higher than in the countries with low budget deficit; in the countries with high FISCAL ILLUSION is higher than in the countries with low FISCAL ILLUSION, and in the high income countries is higher than other countries. Inflation has a positive effect and exchange rate as well as the degree of trade openness has negative effect on budget deficit.

Purpose of the present study is to estimate the FISCAL ILLUSION index, using Multiple Indicators Multiple Causes (MIMIC) model, using longitudinal data during the period of 2001 to 2021, for 31 provinces of Iran country. The results indicate that the most important causal variables of FISCAL ILLUSION index are educational costs and tax burden (with a negative effect) and economic participation rate (with a positive effect), and the most important indicators of FISCAL ILLUSION were Herfindahl index (with a negative coefficient), budget deficit, inflation rate, indirect tax ratio, real effective exchange rate and Oil revenue (with a positive coefficient) (and all are statistically significant). Also, the results showed that the average value of the estimated FISCAL ILLUSION index, among of the provinces, the lowest average value belongs to Khorasan Shomali and the highest value belongs to Khozestan province. Furthermore, the lowest average value of FISCAL ILLUSION index in the country level belongs to 2001 & 2002 and the highest is in 2021.

The key notion of debt ILLUSION implies that the determined level of government’s revenues and the short term and long term structure of tax influence the level of government’s expenditures and debts. The concept of debt ILLUSION is of vital significance for an important discussion of macroeconomics, i.e. examination of the effects of FISCAL policies on the behaviors of private sector. Keynesian theory of macroeconomics argues that in a determined level of government’s expenditures tax reduction as a result of financing the debts increases the total demand, while according to the alternative perspective better known as Ricardian Equivalence only replaces the current tax with the equivalent amount of the current value of the future tax. Ricardians argue that debt financing and financing by tax are equivalent and thus tax reduction is insignificant. This research seeks to study the effects of budget deficit and debt on private consumption. The difference between the present study and previous similar researches lies in using debt Ricardian hypothesis as means for comparing the traditional outlook with the equivalence problem. The research results show that replacing the government’s debts with tax leads to the increase in private consumption and it is a sign of debt ILLUSION in Iranian economy.

increased expenditures and the government size are an important issue in public sector economics. In this regard, various theories have been developed in order to justify the reasons for the public expenditure growth, and the theories have been empirically tested. One of the outlooks explaining the government expenditures growth and the economy size is FISCAL ILLUSION approach. According to FISCAL ILLUSION theory and experiences, citizens generally do not have a correct perception of FISCAL parameters systematically, so that they wrongly demand for more government expenditures. In this study, seasonal data for the period of 1994– 2015 were used to test and analyze the FISCAL ILLUSION in Iran’ s economy by applying autoregressive distributed lags model. Findings, obtained from the model estimation, indicate that the FISCAL ILLUSION in Iran’ s economy can be explained from the variables of oil revenue and government debt in short-term and long-term, and indirect tax elasticity in short-term. Since the government uses oil revenue to finance its debt and budget deficit, the results may lead to FISCAL ILLUSION. In order to prevent FISCAL ILLUSION, using these sources should be gradually reduced as much as possible. As tax revenue itself generally does not result in FISCAL ILLUSION (based on the findings), the government should specify transparent FISCAL rules by using tax revenues rather than oil revenues in order to prevent both the increasing government expenditures and FISCAL fluctuations. According to the results, government should use more direct tax revenue. As government’ s direct tax revenue, unlike other sources of revenue, does not create FISCAL ILLUSIONs, it does not result in excessive demand by citizens for public expenditures.

This paper analyzes public spending changes in the Iranian economy during the period 1360-1390 using the standard median voter model in which the median voter has FISCAL ILLUSION. In this regard, Autoregressive Distributed Lags (ARDL) model and multivariate cointegration methods have been used in order to test the median voter theorem. The results from estimated models indicate that public expenditure, oil revenues and share of taxes in government revenues cointegrated together and there is a long run equilibrium relationship among them. Also increasing share of taxes in government revenues doesn't have any effect on public expenditures; because public expenditures considerably depend on oil revenues. Thus, tax payers have ILLUSION FISCAL. These findings show that in order to increase the efficiency of public sector in Iran, the dependence of budget to oil revenues should decrease and the share of tax revenues in government revenues should increase.