Edward J. McCaffery

The Humpty Dumpty blues: Disaggregation bias in the evaluation of tax systems

A multi-plate friction clutch includes: a clutch piston 10 which is fitted to a clutch outer and capable of being hydraulically operated to press a group of first and second friction plates toward a pressure-receiving plate; an annular retaining groove formed in a pressing surface of the clutch piston; and a buffering Belleville spring accommodated in the retaining groove and capable of abutting resiliently against the group of the first and second friction plates. The retaining groove has an annular projection formed at its axial opening edge for inhibiting the disengagement of the Belleville spring from the retaining groove. Thus, even when the number of the friction plates is increased, a total gap between the clutch piston and the pressure-receiving plate can be set freely without giving consideration to the falling-off of the Belleville spring.

Toward an Agenda for Behavioral Public Finance

Public finance is one of the oldest sub-fields in economics and social science, behavioral economics among the youngest. While the field of behavioral finance has received much attention, behavioral public finance has received far less. Yet the absence of any simple arbitrage mechanism in the public sphere, such as markets and competition in private domains, suggests that the effects of deviations from rationality may pervade public finance. This article surveys the potential new field of behavioral public finance and notes three broad areas for further inquiry and development: (1) the role of form and framing in the design of public finance mechanisms, (2) the significance of time inconsistency and problems of self-control in employing welfarist models of public policy and (3) alternative models of taxpayer compliance. The three areas illustrate, however tentatively, the need for researchers and policy-makers to use realistic assumptions of human judgment and decision-making in considering important questions in public finance.

Are There Sex Differences in Fiscal Political Preferences

This article examines the relationship between attitudes on potential uses of the budget surplus and sex. Survey results from the Fall of 1999 show relatively weak support overall for using a projected surplus to reduce taxes, with respondents more likely to prefer increased social spending on education or social security. There were, however, significant sex differences, confirmed by multinomial logit analysis: men were far more likely than women to support minimizing “private bads,” that is, tax cuts or paying down the national debt; women were more likely to support expanded spending on public goods, such as education or social security. The strongest sex effect from the Fall 1999 surveys was that women were far more likely to express no opinion than men. When respondents were primed that the tax laws are biased against two-worker families, men significantly changed their stated preferences; women did not. A second round of surveys conducted from July through mid-October, 2000—a period encompassing the two major party political nominating conventions and the brunt of the presidential election campaign—revealed a dramatic narrowing of sex differences in fiscal political preferences, with an almost complete elimination of the gap in “no opinion” responses as to using the surplus to fund a tax cut. Combined with other recent work, this new research suggests that sex differences in fiscal political preferences are a far more complex, nuanced phenomenon than previously thought.

Sex Differences in the Acceptability of Discrimination

A large telephone survey conducted after the attacks of September 11, 2001, suggests that the willingness to tolerate discrimination varies significantly across domains, with a very high tolerance of discrimination against poorly educated immigrants and a strikingly low tolerance of discrimination against the genetically disadvantaged. Regardless of domain, tolerance is greater among men than among women. A survey conducted simultaneously over the World Wide Web, using volunteer panels, replicated the phone survey results and revealed an even larger sex gap. This finding suggests that a social desirability bias leads women to overstate and men to understate their tolerance of discrimination in public.

Masking Redistribution (or its Absence)

Research has shown that people vary widely in their support or opposition to progressive taxation. We argue here that the perception of progressiveness itself is affected by the nature of the tax system and by the way it is framed, or presented. Experiments conducted over the World-Wide Web and using within-subject design demonstrate that subjects suffer from a range of heuristics and biases in understanding and supporting progressive or redistributive taxation. After reviewing some prior results, we report four new studies. Two of them indicate that people do not sufficiently appreciate the reduction of progressiveness that results from the use of tax deductions to partly reimburse private expenditures. The other two indicate that people do not fully appreciate the reduction in progressiveness that results from cuts in government services.

Expanding Discrimination Research: Beyond Ethnicity and to the Web

This article aims to expand research about perceptions of discrimination both substantively and methodologically beyond the domains of race and ethnicity, relying partly on web-based surveys. Copyright (c) 2004 by the Southwestern Social Science Association.

Behavioral Economics and Fundamental Tax Reform

The most common use of the insights of behavioral economics in the cause of fundamental tax reform has been to argue for the employment of ad hoc tax-favored savings vehicles - such as individual retirement accounts (IRAs), medical, and educational savings accounts, and so on - within an income-tax framework. There is no reason under a rational life-cycle model of individual savings behavior why these ad hoc vehicles should work, to increase savings on the micro (individual) or macro (collective social) levels, whether they follow the postpaid approach of traditional IRAs or the prepaid approach of Roth IRAs. Prepaid accounts generate a windfall gain to existing savers, and offer no cash-flow relief for current non-savers to help them save. Postpaid accounts can be easily arbitraged by borrowing, or dissaving. Proponents of these plans thus point to lessons from behavioral economics, arguing that myopic individuals who use mental accounts might be led to save by the special vehicles. This essay takes exception to this standard view. It argues that this view of matters misconceives basic principles of behavioral economics, using ad hoc findings in an ad hoc fashion to justify ad hoc, incremental reform. Best understood, behavioral economics suggests that ad hoc tax favored plans will not work. This counter-theory is supported by the data, which show, broadly, decades of ad hoc tax-favored vehicles within the Internal Revenue Code, with more apparently on the way, matched by convincing evidence of little or no savings by most Americans, and little savings in the aggregate. The essay concludes by suggesting that a happier, more stable marriage of behavioral economics and fundamental tax reform suggests fundamental, not incremental, reform of the tax system.