Behavioral Public Economics

133 Pages Posted: 16 Jul 2018

See all articles by B. Douglas Bernheim

B. Douglas Bernheim

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Dmitry Taubinsky

Harvard University

Date Written: July 2018

Abstract

This chapter surveys work in behavioral public economics, emphasizing the normative implications of non-standard decision making for the design of welfare-improving and/or optimal policies. We highlight combinations of theoretical and empirical approaches that together can produce robust qualitative and quantitative prescriptions for optimal policy under a range of assumptions concerning consumer behavior. The chapter proceeds in four parts. First, we discuss the foundations and methods of behavioral welfare economics, focusing on choice-oriented approaches and the measurement of self-reported well-being. Second, we examine commodity taxes and related policies: we summarize research on optimal corrective taxes, the efficiency costs of sales taxes that are not fully salient, the distributional effects of sin taxes, the use of non-price policies such as nudges, the tax treatment of giving, and luxury taxes. Third, we examine policies affecting saving, including capital income taxation, commitment opportunities, default contribution provisions for pension plans, financial education, and mandatory saving programs. Fourth, we detail the manner in which under-provision of labor supply and misunderstandings of policy instruments impact optimal labor income taxation and social insurance. We close with some recommendations for future work in behavioral public economics.

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Suggested Citation

Bernheim, B. Douglas and Taubinsky, Dmitry, Behavioral Public Economics (July 2018). NBER Working Paper No. w24828. Available at SSRN: https://ssrn.com/abstract=3214374

B. Douglas Bernheim (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
650-725-8732 (Phone)
650-725-5702 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Dmitry Taubinsky

Harvard University ( email )

Cambridge, MA
United States

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