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

Abstract

Behavioral economics has obtained increased acceptance in the field of public finance, thus challenging the neoclassical approach to human decision-making. However, so far the fundamental results of behavioral economics 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 comparable examinations of public expenditure are not very common. To address this shortcoming, the paper offers a review of the existing behavioral economic research on public spending and government expenditure policy.