A Behavioral Local Public Finance Perspective on the Renter’s Illusion Hypothesis

Roberto Dell’Anno () and Jorge Martinez-Vazquez ()
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Roberto Dell’Anno: University of Salerno
Authors registered in the RePEc Author Service: Roberto Dell'Anno

International Center for Public Policy Working Paper Series, at AYSPS, GSU from International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University

Abstract: In this paper we argue that renter’s illusion may not be a form of asymmetric information neither irrationality but rather a way to include in our economic analysis evidence that while homo oeconomicus aims to do a good job of making choices, he frequently is not able to do that. Taxpayers do not know the “objective” world but take decisions according to mental and often biased representations of “their” world. We develop a simple model where misperception plays a fundamental role in the behavior of renters and allows overcoming the dichotomy between rational and irrational renter's behavior. In the paper we also pursue the two complementary aims of introducing “cognitive limitation” into the theory of local public finance and of filling a gap in this literature regarding the lack of micro-foundations for the renter’s illusion hypothesis.

Keywords: Renter effect; Renter’s illusion; Fiscal illusion; Behavioral local public finance. (search for similar items in EconPapers)
Pages: 27 pages
Date: 2013-02-18
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-hme and nep-ure
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