Behavioral Public Finance
Publication Year: 2006
Published by: Russell Sage Foundation
Title Page, Copyright
PART I. Psychology, Economics, and Econometrics
Chapter 1. Toward an Agenda for Behavioral Public Finance
This chapter is about the intersection—or the possible intersection—between the fields of behavioral economics and public finance, which we call behavioral public finance. Public finance is a venerable field in the economics fold. Its positive and normative branches rest on two basic assumptions. One, and central to public finance’s positive agenda, is that individuals are rational, maximizing...
Chapter 2. Statistical, Identifiable, and Iconic Victims
In the ideal vision of public finance, each dollar of government spending is allocated to the area where it can do the most good, and taxes are levied and revenues spent to the point where the marginal value of a public dollar is equal to that of a private dollar. Reality falls short of this ideal in many ways. The political system doesn’t necessarily aggregate...
Chapter 3. Distinguishing Between Cognitive Biases
Economists have recently taken increased interest in a number of cognitive biases and heuristics first documented by psychologists.1 In theoretical studies, economists typically introduce such biases and heuristics into stylized models with a goal of understanding how small, but psychologically relevant, deviations from the standard economic framework can influence decisions such as saving and consumption...
PART II. Behavior and Policy
Chapter 4. Masking Redistribution (or Its Absence)
Behavioral economics considers the ways that actual people make economic decisions and take economic actions (Thaler 1980; Kahneman and Tversky 2000; Sunstein 2000). In a nutshell, people make mistakes, showing inconsistent judgment in the face of framing and other formal manipulations of the presentation of choice problems....
Chapter 5. Mispredicting Utility and the Political Process
Individual decisions involve difficult trade-offs between pursuing material wealth, status, and fame on the one hand and, on the other, investing in social relationships and choosing activities that provide autonomy and the experience of competence. There is an increasing belief that people systematically err in these decisions and spend too much time, effort, and money on goods, services, and activities with strong extrinsic...
Chapter 6. Hyperopia in Public Finance
Human time preferences are complicated. People often seem to behave myopically, placing a heavy premium on present consumption over future consumption (see, for example, Baron 2000, 470). However, at other times, people appear to do just the opposite, weighting future payoffs more heavily than present ones (Loewenstein 1987; Loewenstein and Prelec 1991). This latter category of behavior...
PART III. Tax Compliance
Chapter 7. Value Added Tax Compliance
Over the last fifteen years there has been a considerable research into tax compliance (Andreoni, Erard, and Feinstein 1998). Many new theoretical models of the compliance process have been devised and a wide range of empirical studies carried out. But the focus of most of this research has been personal income tax compliance. Business tax evasion in general, and VAT compliance in particular, have received...
Chapter 8. Trust and Taxation
One of the perennial questions in the literature on tax compliance is what causes people to pay taxes (see Slemrod 1992). This question arises because, if one applies standard game theory or almost any rational choice approach to the problem of tax compliance, the level of the penalties and enforcement that we see in the United States would appear to be insufficient to explain the degree of compliance with...
Chapter 9. Tax Evasion: Artful or Artless Dodging?
If, as Hegel observes, “The rational is the highroad where everyone travels, where no one is conspicuous” (cited in Knox 1952, 230), then that highroad is surely not sign-posted with the axioms of expected utility theory. Rather it is littered with an array of partially analyzed, yet systematic, heuristic responses. The likes of transitivity, strong separability...
PART IV. Retirement Behavior
Chapter 10. Accounting for Social Security Benefits
For most working Americans, Social Security benefits represent a significant financial asset, in many cases their principal or sole source of retirement income.1 According to the Social Security Administration (SSA), the aggregate present value of Social Security benefits promised to those age sixty-two and older was $4.3 trillion dollars in...
Chapter 11. Saving for Retirement on the Path of Least Resistance
The growth of 401(k)-type savings plans and the associated displacement of defined benefit plans have generated new concerns about the adequacy of employee savings. Defined contribution pension plans place the burden of ensuring adequate retirement savings squarely on the backs of individual employees. However, employers make many decisions about the design of 401(k) plans that can either facilitate or hinder...
PART V. Reservations
Chapter 12. Second-Order Rationality
For much of my academic career I have defended a version of libertarian theory of limited government, a government whose central function is protection of private property and voluntary exchange against force and fraud (see Epstein 1985, 1995, 1998, 2003). This recognizes a role for taxation and eminent domain, not only for the common defense but also for creating infrastructure and controlling and regulating...
Page Count: 416
Publication Year: 2006
OCLC Number: 646988498
MUSE Marc Record: Download for Behavioral Public Finance