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Behavioral Public Economics

Dmitry Taubinsky

Handbook of Behavioral Economics – Foundations and Applications 1B. Douglas Bernheim, Stefano DellaVigna, and David Laibson (eds), Chapter 5, Elsevier, 2018, pp. 381-516

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.

Research Fields : 
Behavioral Economics
Behavioral Public Economics
Behavioral Welfare Economics
Financial Competence
Financial Education
Household finance
Psychology of Choice
Public Economics
Taxation, Budgets & Deficits