Fiscal Illusion and the Demand for Government Expenditures on the Iranian Economy

According to public choice theory, the features of the tax structure effect on voter's perceptions from the tax burden, so they pay more cost for public goods, lower than the estimate. In this study has been investigated the relationship between tax and public expenditures in the Iranian economy during 1360-1390 based on public choice theory to examine the level of government spending. Theoretical model was achieved after combining the standard median voter model with fiscal illusion through less visible taxes (indirect). For estimation of model were specified ARDL and ECM models. Results from estimated models show that fiscal illusion is due high share of oil revenues in Iranian economy and taxes invisible not associated with increasing level of government expenditures.