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

• Main Author: Paul Onyango-Delewa
• Format: Article
• Language: English
• Published: Master Program in Economics, Graduate Program of Universitas Jambi 2020-02-01
• Series: Jurnal Perspektif Pembiayaan dan Pembangunan Daerah
• Subjects: community sensitization; expenditure efficiency; fiscal illusion; local government
• Online Access: https://online-journal.unja.ac.id/JES/article/view/8564

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.