Saturday, March 25, 2006
Edward J. McCaffery (USC) & Jonathan Baron (University of Pennsylvania, Department of Psychology) have published Thinking About Tax, 12 Psychology, Public Policy, and Law 106 (Feb. 2006). Here is the abstract:
This article reports the findings of several experiments about perceptions of various aspects of tax-law design. The authors find that people are vulnerable to a wide range of heuristics and biases in evaluating public finance systems, leading to inconsistent judgments and evaluations. These errors in judgment are specific instances of a more general isolation effect, whereby people respond quickly to a decision or choice set, focusing on salient aspects while ignoring or underusing logically relevant information that is not immediately before them. In tax and public finance, this tendency to make decisions as if with blinders on is problematic. As a result of it, skillful politicians can manipulate public opinion, and tax system design can be volatile on account of the possibility of eliciting preference reversals through purely formal rhetorical means. More troubling, the findings suggest a likely and persistent wedge between observed and optimal public finance.