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In public choice theory, fiscal illusion is a failure to accurately perceive the amount of government expenditure. The theory of fiscal illusion was first developed by the Italian economist Amilcare Puviani in his 1903 book Teoria della illusione finanziaria.
Fiscal illusion occurs when government revenues are not completely transparent or are not fully perceived by taxpayers; then the cost of government is seen to be less than it actually is. Since some or all taxpayers benefit from government expenditures from these unobserved or hidden revenues, the public's appetite for government expenditures increases, thus providing politicians incentive to expand the size of government.
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