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A Reduced-Form Approach to Behavioral Public Finance

Author

Listed:
  • Sendhil Mullainathan

    (Department of Economics, Harvard University, Cambridge, Massachusetts 02138, and Consumer Financial Protection Bureau, Washington, DC 20552)

  • Joshua Schwartzstein

    (Department of Economics, Dartmouth College, Hanover, New Hampshire 03755)

  • William J. Congdon

    (Brookings Institution, Washington, DC 20036)

Abstract

Research in behavioral public finance has blossomed in recent years, producing diverse empirical and theoretical insights. This article develops a single framework with which to understand these advances. Rather than drawing out the consequences of specific psychological assumptions, the framework takes a reduced-form approach to behavioral modeling. It emphasizes the difference between decision and experienced utility that underlies most behavioral models. We use this framework to examine the behavioral implications for canonical public finance problems involving the provision of social insurance, commodity taxation, and correcting externalities. We show how deeper principles undergird much work in this area and that many insights are not specific to a single psychological assumption.

Suggested Citation

  • Sendhil Mullainathan & Joshua Schwartzstein & William J. Congdon, 2012. "A Reduced-Form Approach to Behavioral Public Finance," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 511-540, July.
    • Handle: RePEc:anr:reveco:v:4:y:2012:p:511-540
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-economics-111809-125033
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    More about this item

    Keywords

    behavioral economics; taxation; social insurance; externalities;
    All these keywords.

    JEL classification:

    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H00 - Public Economics - - General - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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