Monday, September 17, 2012
This paper is an early draft of a chapter in the forthcoming Oxford Handbook of Behavioral Economics and the Law. It summarizes past and recent contributions of behavioral economics to tax law, grouping matters into areas of tax compliance, behavioral modification, tax system design, and fiscal balance. A principal theme is that early efforts to make normative or prescriptive recommendations based on behavioral findings – particularly, the cases for tax-favored savings plans and for increased reliance on “low salience” taxes – suffer from failures to consider the wider institutional contexts in which taxes operate and, ironically, also suffer from cognitive biases on the part of their advocates. The path from laboratory to real-world policy prescription must still be laid out, although the task is important, especially as pervasive behavioral effects are in play in present and looming fiscal crises world-wide.