This article examines the relationship between the selection of tax instruments Abstract and the size of the public budget. It develops and tests with data from 37 large
cities a model that is an alternative to the commonly cited fiscal illusion model.
The model is predicated upon the assumption that budget-maximizing
governments prefer broad-based tax systems composed of inelastic taxes and
not just many taxes. The empirical tests indicate that cities that rely on taxes
with elastic bases tend toward lower per capita tax revenues and cities that rely
on taxes with inelastic bases tend toward higher per capita tax revenues.
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