## ADDING ETHICS TO PUBLIC FINANCE

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### Moral framing of fiscal policy
- Policy decisions on taxation and public expenditures intrinsically reflect moral choices (examples: how much of your hard-earned money is fair for the state to collect; should the rich pay more; should basic public services be free).
- Economists and public finance practitioners have traditionally focused on economic efficiency and, when addressing distributional issues, have generally steered clear of moral considerations.
- Evolutionary moral psychology suggests policies can be better designed and muster broader support if policymakers consider the full range of moral perspectives on public finance.
- A few pioneering empirical applications of this approach in economics have shown promise.

### The golden rule and its limits
- Traditional redistribution analysis requires users to provide preferences about inequality; individuals (or households) are centered in the analysis, with relevant characteristics being incomes, wealth, or spending potential.
- Two reasons for the individual-centered, value-neutral approach:
  - Economists often wish to be viewed as objective social scientists.
  - Most public finance scholars have been educated in WEIRD (Western, Educated, Industrialized, Rich, and Democratic) societies, where morality aligns with the golden rule—treat others as you would want to be treated.
- Evolutionary moral psychologists show moral judgments are often made instinctively and then justified by deliberation; instincts evolved to foster cooperation within groups.
- Moral perspectives beyond the golden rule (community, authority, divinity, purity, loyalty, sanctity) are important both in non-Western countries and among politically influential segments in advanced economies.

### Moral Foundations Theory (six foundations)
- According to Haidt (2012), six moral foundations emerged as evolutionary responses:
  - (1) Care/harm: sensitivity to suffering; disposition to care for those in need.
  - (2) Fairness/cheating: valuing collaboration and reciprocal altruism; shunning or punishing cheaters.
  - (3) Loyalty/betrayal: rewarding team players and punishing those who betray the group.
  - (4) Authority/subversion: respect for rank and status; sensitivity to proper behavior given position.
  - (5) Sanctity/degradation: disgust at pollution (physical or figurative); longing for purity in nature, feelings, and relationships.
  - (6) Liberty/oppression: banding together to oppose tyrannical leaders; left-right manifestations differ in targets of opposition.
- The first two foundations align with the WEIRD golden-rule tradition; the other four can lead to differential treatment based on group membership, community, or identity.

### Two policy debates illustrating moral perspectives
- Automation/globalization and community preservation:
  - Traditional economic advice emphasized liberalizing labor and housing markets and facilitating mobility.
  - This individual-focused approach paid scant attention to the role of communities; policymakers are increasingly seeking to support communities left behind.
- Immigration and cultural identity:
  - Economic analyses typically focus on costs and benefits to citizens/residents and avoid considerations of preserving cultural identity.
  - For many people, cultural identities matter; social sciences are paying increasing attention to identity and social distance.
- Broad categorization:
  - Universalists (globalists): altruism/trust unaffected by social distance.
  - Communitarians (nationalists): altruism/trust declines with social distance.

### Empirical findings linking moral views and policy preferences
- Enke, Rodríguez-Padilla, and Zimmermann (2020): the traditional left-right divide across several Western countries is ultimately explained by whether individuals’ moral values are primarily universalist or communitarian.
- Klemm and Mauro (2021): communitarians’ opposition to progressive taxation declined among individuals directly hurt by the pandemic through job loss or illness.
- Stantcheva (2021): using U.S. surveys, notions of fairness are more important than views regarding efficiency in shaping attitudes toward progressivity in taxation of income or inherited wealth.

### Applications of specific foundations to fiscal policy design and messaging
- Purity foundation:
  - Applies to preserving local and global environments; a carbon tax could be framed as safeguarding the purity of the earth.
  - Communitarians may be more receptive to messages emphasizing local environmental purity rather than global climate change.
  - The purity instinct may underlie desires to balance the country’s budget (analogy: putting one’s house in order).
- Loyalty foundation:
  - Can be leveraged to promote national competitiveness in science, technology, or productivity by evoking patriotic spirit similar to rooting for national sports teams.
- Authority foundation:
  - Useful even in modern democracies; persuasive messengers depend on context (examples: a military doctor in uniform advocating additional health spending may persuade a conservative audience).

### The role of information in shaping moralized policy positions
- Psychologists’ experiments (Greene 2013): respondents confronted with their lack of understanding of controversial policies (e.g., single-payer health care, cap and trade) adopted more moderate positions after being asked factual questions about how the policies work.
- Survey-based economic studies (e.g., Stantcheva 2021) use a before-and-after information design to measure how factual information reshapes attitudes toward policies.
- Providing information can, in some cases, be the beginning of persuasion; asking factual questions about how a policy works may be a better conversation starter than asking why someone supports it.

### Policy implications and recommendations
- Policy choices in public finance affect distribution across groups defined by income; geography; and ethnic, linguistic, and religious characteristics.
- When considering tax or spending policies, most people focus on fairness; analysis may be enriched by considering a broader palette of moral perspectives.
- Considering how a policy may be designed to be more acceptable—and presented in a more appealing way to citizens with different moral perspectives—can increase the chance of mustering consensus.
- Large-scale empirical studies applying moral-perspective insights to public finance are only recently yielding results; nonetheless, recognizing moral diversity is a helpful starting point for better policy design and communication.

*Paolo Mauro, “ADDING ETHICS TO PUBLIC FINANCE,” Finance & Development, March 2022.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2022/march/mauro.pdf_