This paper examines the empirical analysis of the five main hypotheses subsumed under the generic term fiscal illusion. After placing these hypotheses within a common theoretical framework, the paper attempts to evaluate empirical research into the revenue-complexity hypothesis, the revenue-elasticity hypothesis, the flypaper effect, renter illusion, and debt illusion.

The Empirical Analysis Of Fiscal Illusion

The emphasis of a public budget depends on the time and circumstances in which it is developed. During the 1990s, for example, the emphasis has increasingly been on accountability due to widespread public belief in recent years that government is uncontrollable and responds only to special interests. Over the past few years, local budgeters have begun to adapt to this new environment by improving the accountability of the budget to the public. This article summarizes some of the changes taking place and suggests some additional changes that could be adopted to make local budgeting more accountable.

Budgeting for Accountability: Municipal Budgeting for the 1990s

Local governments' re-election and its determinants: New evidence based on a Bayesian approach

The transition economies of Central and Eastern Europe, through the reform process of decentralization, are now seeking the devolution of fiscal powers, and responsibilities from central, to local governments, within financially sustainable environments. To this end, a system of local budgets, and taxes needs to be devised, over which local governments may have control. Thus, this report focuses on the tax on immovable real property, one of the most important local tax options, and, undertakes comparative analysis of tax policy formulation, within a context of rapid institutional changes. Case studies provide insights into the policy debates, and choices that guide the process of property tax reform, and, shed light on the entire cycle, from initial impetus, to resulting legislation, and the subsequent administrative challenges of assessment, collection, appeal, and review. Because of the multiple roles of property taxation (as an instrument of decentralization, an element of property rights, an adjunct to privatization and restitution, and a source of revenue), it is appropriate to consider its development in multiple contexts. Therefore, the cases range from first generation reformers, i.e., Poland, Estonia, Slovakia, and parts of the Russian Federation, to later efforts in the Czech Republic and Armenia. These cases aim to broaden the understanding of available alternatives, and their relationship to specific political, legal, and economic settings.

The Development of Property Taxation in Economies in Transition: Case Studies from Central and Eastern Europe

This article examines the breadth of the current forecast literature as it relates to public budget making. It serves to provide summary information to decision-makers who otherwise do not have the resources to learn more than a small amount focused on much more narrowly defined areas of forecasting (such as the politics of forecast bias). Next, it serves those who perform forecasting related to budgeting by reviewing the current methods and practices commonly used in this domain. It also provides a ground level for future public budget forecasting research. Finally, this article identifies several areas in which the public forecasting literature needs additional development. Several of these areas, such as the effectiveness of nonregression-based forecasting techniques, are quite important to the majority of governments in the United States and other subnational jurisdictions, where budget offices are limited and resource investments in technology are scarce.

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The Status of Budget Forecasting

The paper examines the political business cycle at the municipal level in the Czech Republic using data for 205 municipalities in the period 2001-2007. We introduce empirical models based on fi xed-effects panel data regression testing the capital and current expenditure manipulation prior to elections. The results indicate signifi cant increase in capital expenditures and signifi cant decrease in current expenditures prior to elections. At the same time the manipulation with capital expenditures does not increase the probability of re-election for the incumbents in the Czech municipalities.

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Political business cycle in czech municipalities

The paper evaluates budget transparency in Czech local government. The Disclosure requirements specified in the legislation are fragmented: not all existing budget documents must be published and noncompliance only leads to sanctions in some cases. Analysis and comparison of disclosure practice in the 22 Prague districts revealed that districts comply with the disclosure requirements stipulated in the Budgetary rules but often fail to comply with the requirements stipulated by the freedom of information legislation. The commitment to transparency in form of a policy statement has no impact on the overall evaluation of the districts but it is positively associated with compilation of narratives accompanying both the draft budget and draft year-end report. The size of the district plays only a limited role.

Budget Transparency in Czech Local Government

Property tax autonomy of the Czech municipalities is quite narrow and to great extent unused. Perceived political costs of its usage are high and only 8% of municipalities utilized the possibility to increase the tax rates through so called local coefficient. Using the binary logit model and a full sample and two subsamples of Czech municipalities in 2014 the existence of tax mimicking is confirmed regardless the subsample of municipalities considered or the definition of neighbors applied. The likelihood to increase the local coefficient is to some extent influenced by the composition of the municipal council and local demographic, geographic and fiscal situation. However, the overall capacity of the model to indicate municipalities which apply local coefficient is low and suggests that there are many other or different situations or factors which result in application of local coefficient

Municipal Tax Autonomy and Tax Mimicking in Czech Municipalities

Existing published research of the relationship between budget transparency and fiscal performance confirms the expectations that higher budget transparency is associated with smaller budget deficits and lower public debt. However, our previous research did not bring such clear results and raised a fundamental question: Why should greater transparency improve fiscal performance? The objective of the proposed paper is to evaluate the relationship between budget transparency and fiscal performance. 
Based on the literature review we have identified three channels through which increased transparency may limit excessive public expenditures resulting in budget deficit and public debt: (1) reduce fiscal illusion, (2) decrease information asymmetry between politicians and voters which may improve accountability and increase political competition, and (3) strengthen the enforcement of fiscal rules. The results of statistical analysis (conditional means analysis for 2008 and correlation and regression analysis for 2003 to 2009) did not prove any significant negative relationship between budget transparency, measured by the Open Budget Index, and budget deficit or public debt.

Budget transparency and fiscal performance: Do open budgets matter?

Abstract Inter-municipal cooperation (IMC) in the Czech Republic is common and flexible and is generally viewed as a means to reduce problems related to the highly fragmented local government structure. The paper utilizes financial and accounting data of public entities to evaluate the character and magnitude of inter-municipal cooperation in the Czech Republic. It concludes that the extent of public services provided based on the service contracts or through institutionalized forms of IMC is quite limited and that the majority of the IMC is somewhat informal and soft , e.g. exchange of experience and ad-hoc projects.

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Lucie Sedmihradská

Papers

Political business cycle in czech municipalities

Budget Transparency in Czech Local Government

Municipal Tax Autonomy and Tax Mimicking in Czech Municipalities

Budget transparency and fiscal performance: Do open budgets matter?

Inter-Municipal Cooperation in the Czech Republic: A Public Finance Perspective