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Behavioral Economics and the Law: Tax

Doron Teichman and Eyal Zamir, eds., Oxford Handbook of Behavioral Law & Economics, Forthcoming

USC CLASS Research Paper No. CLASS13-1

37 Pages Posted: 18 Sep 2013  

Edward J. McCaffery

USC Gould School of Law

Date Written: September 16, 2013

Abstract

This chapter argues that a behavioral law and economics approach to tax is deeply needed for a wider normative analysis of the impacts of law on social welfare. The absence of traditional markets to serve as arbitrage mechanisms in public finance means that suboptimal tax and fiscal systems can arise and persist for long periods of time. Most of the current scholarly applications of behavioral approaches to tax, however, fail to take into account the institutional settings in which tax laws exist. The common recommendation for tax-favored savings plans to counteract a persistent individual-level myopia that leads to under-savings for many suffers from the possibility of being undercut on account of the ability to borrow tax-free under the current income tax system, combined with...individual-level myopia. Similarly, a recent trend of scholarship that argues for “low salient” taxes to help ameliorate persistent fiscal crises (themselves exacerbated by pervasive behavioral biases playing out in a setting absent effective arbitrage mechanisms) ignores or underplays the real costs of even hidden taxes, both allocatively and distributionally. The chapter concludes that the most critical work for a behavioral law and economics approach to tax lies ahead.

Suggested Citation

McCaffery, Edward J., Behavioral Economics and the Law: Tax (September 16, 2013). Doron Teichman and Eyal Zamir, eds., Oxford Handbook of Behavioral Law & Economics, Forthcoming; USC CLASS Research Paper No. CLASS13-1. Available at SSRN: https://ssrn.com/abstract=2326772

Edward J. McCaffery (Contact Author)

USC Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States
213-740-2567 (Phone)
213-740-5502 (Fax)

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