Behavioral Public Finance

  • Credits: 6
  • Ending: Examination
  • Range: 2P + 2C
  • Semester: winter
  • Year: 2
  • Faculty of Economics and Finance

Teachers

Included in study programs

Finance and Taxes

Teaching results

At the end of class students will have a good sense of the conceptual and empirical approaches that are currently used in successful behavioral economics research, more specific - Knowledge and Understanding, Skills, Competence:
- Students will be able to interpret empirical results from research papers for a policy audience. Additional to textbook, students will reed and discuss research papers in respective topics and discuss them during seminars.
- They will demonstrate knowledge of key theories and policy findings from the field of behavioral public finance. In the final exam students will use this knowledge to solve the problem and reason suggested solution.
- Students will be able to apply insights from behavioral economics to policy design. Each student will apply the knowledge in delivering assignments to suggest specific policy design.

Indicative content

Traditional public finance provides a simple but powerful framework to analyze the questions discussed on the front page of the newspaper every day. This framework, however, is often criticized for relying on an overly simple model of human behavior. Behavioral economics advocates a psychologically richer perspective on human behavior for economic analysis. The course introduces this new development in public finance that not only attempts to apply psychology to public finance problems but also tries to reshape core public finance concepts such
as moral hazard, deadweight loss and tax incidence.
1. Introduction
2. Psychology and Economics (Imperfect optimization, bounded self-control and nonstandard preferences)
3. Behavioral Economics and Public Finance (How do they change the standard conclusions of public finance?)
4. Asymmetric Information (Adverse selection and moral hazard interact with behavior tendencies)
5. Externalities and Public Goods
6. Public Finance in Imperfect World - Environmental externalities
7. Poverty and Inequality
8. Taxation and Revenue
9. Behavioral Economics and Tax Compliance
10. Optimal Taxation with Behavioral Agents
11. Behavioral Economics of Education
12. Markets that Move by Beliefs

Support literature

Congdon et al. 2011. Policy and Choice: Public Finance through the Lens of Behavioral Economics 2011, The Brookings Institution, free download: https://www.researchgate.net/publication/287239246_Policy_and_choice_Public_finance_through_the_lens_of_behavioral_economics
Hunt Allcott. 2011. “Social Norms and Energy Conservation,” Journal of Public Economics, 95: 1082-1095.
Allcott, Hunt, and Judd B. Kessler. 2019. "The Welfare Effects of Nudges: A Case Study of Energy Use Social Comparisons." American Economic Journal: Applied Economics, 11 (1): 236-76.
Engström, Per, Katarina Nordblom, Henry Ohlsson, and Annika Persson. 2015. "Tax Compliance and Loss Aversion." American Economic Journal: Economic Policy, 7 (4): 132-64.
Rees-Jones, A. 2018. “Quantifying Loss-Averse Tax Manipulation.” The Review of Economic Studies, 85(2): 1251–1278.
Hallsworth, M., List, J., Metcalfe, R., and Vlaev, I. 2017. “The Behavioralist as Tax Collector: Using Natural Field Experiments to Enhance Tax Compliance.” Journal of Public Economics, 148: 14-31.
Feldman, Naomi E., Peter Katuscak, and Laura Kawano. 2016. “Taxpayer Confusion: Evidence from the Child Tax Credit.” American Economic Review, 106 (3): 807–835.
Farhi, Emmanuel and Xavier Gabaix. 2018. “Optimal Taxation with Behavioral Agents,” NBER WP 21524.
Rees-Jones, Alex and Dmitry Taubinsky. 2019. “Measuring “Schmeduling,”” Review of Economic Studies, forthcoming.

Requirements to complete the course

20 % midterm exam,
20 % assignment,
60 % written exam

Student workload

Lectures 26 h,
Seminars 26 h,
Preparation for seminars 13 h,
Preparation of assignments 26 h,
Preparation for midterm test 13 h,
Preparation for final exam 52 h

Language whose command is required to complete the course

slovak

Date of approval: 11.03.2024

Date of the latest change: 27.01.2022