Non-Welfarist Optimal Taxation and Behavioral Public Economics

Working Papers 204 Ravu Kanbur, Jukka Pirttilä, Matti Tuomala

Research in behavioral economics has uncovered the widespread phenomenon of people
making decisions against their own good intentions. In these situations, the government
might want to intervene, indeed individuals might want the government to intervene, to
induce behavior that is closer to what individual wish they were doing. The analysis of such
corrective interventions, through taxes and subsidies, might be called ”behavioral public
economics.” However, such analysis, where the government has an objective function that
is different from that of individuals, is not new in public economics. In these cases the
government is said to be ”non-welfarist” in its objectives, and there is a long tradition of
non-welfarist welfare economics, especially the analysis of optimal taxation and subsidy
policy where the outcomes of individual behavior are evaluated using a preference function
different from the one that generated the outcomes. The object of this paper is to first of all
present a unified view of the non-welfarist optimal taxation literature and, secondly, to
present behavioral public economics as a natural special case of this general framework.

Key words: non-welfarism, optimal taxation, behavioral economics