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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:Fiscal illusion at the local sphere: an empirical test of the flypaper effect using South African municipal data
Authors:Amusa, HammedISNI
Mabunda, Robert
Mabugu, RamosISNI
Periodical:South African Journal of Economics
Geographic term:South Africa
Subjects:fiscal policy
local finance
revenue allocation
External link:https://onlinelibrary.wiley.com/doi/10.1111/j.1813-6982.2008.00205.x/pdf
Abstract:While South Africa operates a relatively decentralized governance and administrative structure, an important feature of the country's intergovernmental fiscal relations system is the gap that exists between the expenditure responsibilities of subnational authorities and their assigned revenue bases. The resulting vertical fiscal imbalance is mainly addressed via significant intergovernmental transfers to provinces and local governments. This factor presents strong a priori grounds for assuming that in the South African context, the heavy dependence of many local governments on intergovernmental transfers may generate fiscal illusion. Despite this, there have not been many empirical studies of fiscal illusion in South Africa's intergovernmental transfer system. This paper extends existing literature on fiscal illusion by using the fiscal year 2005/2006 financial and expenditure data from 237 local government authorities in South Africa to evaluate the flypaper variant of the fiscal illusion hypothesis. Empirical results indicate that the marginal effects of municipal own-source revenues on local expenditure exceed those of intergovernmental transfers. No statistical evidence in support of the flypaper hypothesis within the context of municipal expenditures in South Africa is found. Bibliogr., notes, ref., sum. [Journal abstract]