The fiscal (or financial) illusion refers to the mechanisms that affect the perception of the economic agent about the subjective evaluation of costs and benefits of public policies. This paper aims to contribute to a long and still ongoing discussion in the empirical literature regarding the relevance of fiscal illusion for the current tax systems. Authors review main empirical literature on fiscal illusion in order to estimate an overall index of fiscal illusion. The index is estimated for the Italian economy over the period 1995-2009 by applying Factor analysis approach. Fiscal illusion has decreased from 1995 to 2003, later it has remained steady up to 2009.
Keywords: Fiscal illusion, Financial illusion, composite index, factor analysis, tax perception, Italian tax system
Jel Code: H20, H3, C43