The present study has aimed to review the effective factors on the provincial expenditures based on the theory of fiscal illusion. To this end, time series data of the provinces in the time period from 2000 to 2013 was reviewed and the GMM method has been used to estimate the specified model. According to the results, the fiscal illusion resulted from indirect taxes has an influence on the provincial expenditures, but the fiscal illusion of the complexity of the structure of taxes in Iran’s provinces is not accepted. Also, research results have shown that oil revenues of the province, as the intergovernmental grant index (from the central government to provincial government), has a greater impact on the public spending of the provinces than the tax revenues of the provinces and the presence of the flypaper effect is accepted about Iran’s provinces.
