Behavioral Economics of Taxation and Benefits

Abstract

　This paper presents a survey of research utilizing insights from behavioral economics in the economic analysis of taxation and benefits and discusses Japan’s taxation and benefits policies from the viewpoint of behavioral economics. Behavioral economics is a collective term that is applied to research based on models in which the agent behaves under assumptions that differ from the “standard assumptions.” In recent years, there has been a sudden upsurge in research, even in theoretical analysis and empirical research on taxation and benefits. Specifically, studies are being conducted on topics such as tax-related inattention, the impact of taxation and benefits complexity, institutional design of retirement savings and pensions, promotion of tax payment, and the effects of benefits on labor, education and medical care. From the theoretical aspect, researchers are studying its relationship with optimal taxation. Knowledge of behavioral economics offers a new perspective to evaluate systems and policies related to taxation and benefits in Japan and has the potential to propose institutional design that is based on a more realistic image of humankind.