Toward an Agenda for Behavioral Public Finance
29 Pages Posted: 13 Sep 2004
Date Written: August 26, 2004
Public finance is one of the oldest sub-fields in economics and social science, behavioral economics among the youngest. While the field of behavioral finance has received much attention, behavioral public finance has received far less. Yet the absence of any simple arbitrage mechanism in the public sphere, such as markets and competition in private domains, suggests that the effects of deviations from rationality may pervade public finance. This article surveys the potential new field of behavioral public finance and notes three broad areas for further inquiry and development: (1) the role of form and framing in the design of public finance mechanisms, (2) the significance of time inconsistency and problems of self-control in employing welfarist models of public policy and (3) alternative models of taxpayer compliance. The three areas illustrate, however tentatively, the need for researchers and policy-makers to use realistic assumptions of human judgment and decision-making in considering important questions in public finance.
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