Live Breaking News & Updates on Self Interested Citizens May Undermine

Olivier Bargain, Ulugbek Aminjonov
Four decades ago, Robert Lucas rocked economics with a simple observation: taxes and other government interventions in the private economy affect not only the costs and benefits of actions citizens may take (as intended), but also their beliefs about the future actions of others (including the government), possibly in counterproductive ways. For example, announcing stiffer penalties for non-payment of taxes provides an incentive to pay up; but it also may convey the information that non-compliance is common, leading formerly honest citizens to cheat. 
Lucas’ point was that policymaking is not simply resetting the dials on a given model of how the economy works, but instead changing the structure of the model itself (Lucas 1976). In 1994, Henry Aaron of the Brookings Institution pointed to “the failure of economists to take the formation of preferences seriously”, and suggested that the Lucas critique be extended to cover preference ....

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