Toward an Agenda for Behavioral Public Finance

29 Pages Posted: 13 Sep 2004  

Edward J. McCaffery

USC Gould School of Law

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Date Written: August 26, 2004

Abstract

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.

Suggested Citation

McCaffery, Edward J. and Slemrod, Joel B., Toward an Agenda for Behavioral Public Finance (August 26, 2004). USC Law and Economics Research Paper No. 04-25; and USC CLEO Research Paper No. C04-22. Available at SSRN: https://ssrn.com/abstract=590201 or http://dx.doi.org/10.2139/ssrn.590201

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)

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Room R5396
Ann Arbor, MI 48109-1234
United States
734-936-3914 (Phone)
734-763-4032 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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