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.

KEYWORDS:

• fiscal illusion
• taxes
• town government
• local government
• revenue structures
• voter decision-making

Notes

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5. Ibid.

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20. Lowery op. cit. Lowery op. cit.

22. The University of Wisconsin-Extension collects annual financial data from all Wisconsin municipalities and makes it available through a database program called G.R.E.A.T. These are not GAAP compliant audited financial statements, rather annual financial reports required and audited by the State of Wisconsin for aid distribution reports.

23. Towns contained in Menominee County were excluded from this analysis. In this case, the “town” is the county and governed by a single-tier consolidated structure that has seven board members. There are no towns located in Milwaukee County.

24. It has been suggested that we use electoral data for this analysis. However, the state of Wisconsin does not require that electoral data be archived and therefore it is not readily available.

26. We do not assume that constituents are only contacting officials on matters directly related to financial matters; only that more contacting gets the attention of the official.

27. Johnson et al., op. cit.

29. Ibid. Lynd, R. S.; Lynd, H. M. Middletown: A Study in contemporary American culture; Harcourt, Brace and Company: New York, 1929. Blumenthal, A. Small-Town stuff; University of Chicago Press: Chicago, 1932. Wikstrom, Nelson. The political world of a small town: A mirror image of American politics; Greenwood Press: Westport, CT, 1998.

31. Lowery 1987a, op. cit.

32. Lowery 1987a, op. cit. Lowery, 1987b, op. cit.