Adding Ethics to Public Finance
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- Authors: PAOLO MAURO
- Published: March 1, 2022
Overview and central thesis
- Policy decisions on taxation and public expenditures intrinsically reflect moral choices.
- Economists and public finance practitioners have traditionally emphasized economic efficiency and often avoided moral considerations.
- Recent work by evolutionary moral psychologists suggests policies can be better designed and muster broader support if policymakers consider a full range of moral perspectives on public finance.
- A few pioneering empirical applications of this approach in economics have shown promise.
Limitations of the traditional economic approach
- Traditional analysis: individuals as the unit of analysis, with relevant characteristics being income, wealth, or spending potential.
- Two reasons for the traditional approach:
- Economists’ desire to be viewed as objective social scientists.
- Dominance of WEIRD (Western, Educated, Industrialized, Rich, and Democratic) values in public finance scholarship, emphasizing the golden rule.
- Evolutionary moral psychology challenges the sufficiency of the golden rule by showing moral judgments often arise from instinctive reactions later justified by reasoning (Greene 2013).
Moral Foundations Theory — six foundations (Haidt 2012)
- (1) Care/harm: sensitivity to suffering; predisposition 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 betrayal; focused on group membership.
- (4) Authority/subversion: respect for rank and status; sensitivity to proper behavior in hierarchies.
- (5) Sanctity/degradation: disgust at perceived pollution; longing for purity in nature, feelings, and relationships.
- (6) Liberty/oppression: cooperation in hierarchies but readiness to rebel against tyrannical leaders.
- Note: The first two foundations align with WEIRD traditions and the golden rule; the other four can justify treating people differently depending on group membership and other factors.
Applications to public finance debates
- Two highlighted debates where moral perspectives matter:
- Policy responses to job losses from automation and globalization:
- Traditional economist focus: liberalize labor and housing markets to facilitate individual mobility.
- Moral-perspective insight: supporting communities left behind may better address people’s identification with place and community.
- Immigration and access to publicly funded services:
- Traditional analysis: costs and benefits to citizens/residents.
- Moral-perspective insight: cultural identity and communitarian concerns affect views on immigrant access to services.
- Globalists (universalists) versus nationalists (communitarians):
- Universalists: altruism/trust unaffected by social distance.
- Communitarians: altruism/trust decline with social distance.
Empirical findings and examples
- Enke, Rodríguez-Padilla, and Zimmermann (2020):
- Suggest the traditional left-right divide is explained by whether individuals’ moral values are primarily universalist or communitarian.
- NBER Working Paper 27511.
- Klemm and Mauro (2021):
- Found communitarians’ opposition to progressive taxation declined among individuals directly hurt by the pandemic through job loss or illness.
- International Tax and Public Finance 28 (Supplement).
- Stantcheva (2021):
- Using US surveys, shows notions of fairness are more important than views regarding efficiency in shaping attitudes toward progressivity in the taxation of income or inherited wealth.
- Quarterly Journal of Economics 136 (4): 2309–69.
- Behavioral experiments (Greene 2013):
- Participants asked to explain controversial policies (single-payer health care, cap and trade) then reassessed their views; confronting lack of understanding led to more moderate positions.
Design and communication implications for policy
- Policy design:
- Consider a broader palette of moral perspectives (care, fairness, loyalty, authority, sanctity, liberty) to craft measures that can muster wider consensus.
- Leverage specific moral foundations for policy framing:
- Purity/sanctity: present a carbon tax as safeguarding the purity of the earth; emphasize local environmental purity for communitarians.
- Loyalty: promote national competitiveness in science, technology, or productivity using patriotic sentiments.
- Authority: use respected figures (context-dependent: police, military, teachers, doctors, the elderly, religious leaders) to deliver messages that resonate with conservative audiences.
- Analogy examples: balancing the budget likened to putting one’s house in order invokes purity sentiments.
- Role of information:
- Persuasion presupposes some openness to information; providing factual explanations of how policies work can moderate extreme positions.
- Survey-based experiments that provide facts and measure opinion changes suggest information can be the beginning of persuasion (Stantcheva 2021).
- Practical recommendation:
- When considering tax or spending policies, enrich fairness-focused analysis with additional moral perspectives and tailor presentation to citizens with differing moral values to increase acceptability.
Key takeaways
- Moral perspectives beyond the golden rule (community, authority, divinity/purity, loyalty, sanctity, liberty) are influential in shaping public finance preferences.
- Understanding these perspectives can explain observed political divides and improve policy design and communication.
- Providing factual information about policy mechanics often leads to more moderate public positions and can facilitate persuasion.
- Large-scale empirical studies applying moral psychology to public finance are nascent but promising; incorporating these insights is a practical starting point for policymakers.
Paolo Mauro, F&D Magazine, March 2022. Opinions expressed are those of the author and do not necessarily reflect IMF policy.
Content in this bundle
- إضافة البعد الأخلاقي إلى المالية العامة
- Donner une dimension éthique aux finances publiques
- Adding Ethics to Public Finance
- Включить этику
- Aplicar la ética a las finanzas públicas ● Finanzas y Desarrollo ● Marzo de 2022
- 对于公共财政 - 增加道德规范