Fiscal illusion stems from the study of Amilcare Puviani "Financial theory of illusion"1 (1903) and it is defined as the phenomenon that generates a feeling of easing the tax burden and an increase in social benefits, especially possible in those contexts in which the revenue of the State and the financing of public services are not fully known or controlled by the taxpayer.
Fiscal illusion occurs to leading taxpayers due to the mistaken perception of living in a context where there was a reduction in the overall level of taxation or even an increase in expenditure on public goods provided without any increase in taxation. Fiscal illusion becomes evident in those contexts in which an increase in provided public services is unperceived by economic agents. They do not get the perception that this increase in services is not made up during the same period of taxation, but rather through the use of public deficit. This implies a simple shift of the increase in taxation to future years, or of an increase in the supply of money, that generates inflationary pressures. Such pressures will cause increases in fiscal pressure and tax revenues, but only in future years.
1The theory of “financial illusion” argued that, through the management of public finance, public rulers were used to allocate a substantial part of public financial resources to the ruling class, without the working classes knowing. Therefore, the latter were mislead by tactics and deception to come to incorrect assessments of the aims of policy choices, for example by letting them perceive a reduction in taxes while these increased.

Puviani A. a cura di Volpi F. (1976) "Teoria dell'illusione finanziaria",Milano ISEDI. 

Editor: Alberto Maria SORRENTINO