Behavioral Economics and Government Purchases – Some Insights into the Fiscal Psychology of Public Expenditure

Abstract

Behavioral economics have increased acceptance in public finance, thus challenging the neoclassical approach to human decision-making. However, so far, behavioral economics' fundamental results on cognitive heuristics, illusions, and biases with respect to human information processes, judgments, and choices were primarily applied to the analysis of taxation and public debt. In contrast, up to now equivalent examinations of public expenditure are not very common. The paper offers a review of the existing behavioral economic research on public spending and government expenditure policy to address this shortcoming.

Keywords

• behavioral economics
• public expenditure
• fiscal psychology
• fiscal illusion