Heuristics and Biases in Public Finance and Tax Law: Outline of a Behavioral Approach in Brazil

Abstract

The purpose of this work is to analyze how public expenditure is evaluated considering the behavior of individuals and agents with concern to legal rules in public finance As a matter of fact, the rules pursue the preferences from individuals and for this reason they sometimes represent judgments based on the human behavior. Some scholars call this “behavioral public finance” and they illustrate how budgetary and tax rules are able to influence the behavior and judgment of individuals (and also how this may be sometimes misinterpreted because of heuristics and biases). I argue that this trend can be inferred by some legal rules in a particular country – v. g., Brazilian experience in public finance and tax law. In its Constitution, it is possible to observe several rules that reflect a specific and diverse value in public expenditure as a result of some heuristics and biases, e. g., a minimum mandatory spending. There are also some taxes that could be studied under this approach in order to achieve an efficient tax policy. Beyond this constitutional analysis, the same phenomenon occurs in the budget with respect to some budgetary techniques, i. e., Congressmen use politics which is over the budget-making process to protect some expenditure over others by the same process of heuristics and biases, which sometimes could be used by some politicians as a “reelection tool”.

Keywords: behavioral public finance, public expenditure, budgetary process

JEL Classification: D03, K34