elasticity of demand for the public good. This increase in G will require an increase in t.
Note that the percentage change in the tax price depends on , in particular it equals
.
Second, local officials may raise property tax rates because a fiscal illusion effect
hides the true level of taxation from the median voter. Filimon, Romer and Rosenthal
(1982) develop this argument with a grant illusion model in which taxpayers have
imperfect information regarding the true value of the transfers their government receives
and officials exploit this ignorance to pursue a budget maximizing strategy. In their
model, local taxpayers base their voting behavior on perceived aid and perceived
government spending , rather than the actual values, which are denoted A and G. In
their model Filimon et al. frame the relationship between real and perceived aid as a
proportion determined by a fiscal illusion parameter