Behavioral Economics and Tax Amnesty

The present paper provides an in-depth analysis of the key assumptions and implications formulated in the article “The Effects of Behavioral Economics on Tax Amnesty” (2015) by Mehmet Nar. The author evaluates the proper relationships between psychology and economics. For a long time, these disciplines have been viewed as distinctly different from one another, regarding both their scope of investigation and the methods used. However, the current development of science in several fields indicates the necessity of integrating both disciplines while evaluating the real-world phenomena and events.

Nar (2015) believes that psychology may serve as a complementary tool for analyzing people’s choices. The author’s main thesis is that the proper comprehension of economic motives presupposes the proper awareness of psychological aspects. Economics per se cannot explain the majority of agents’ intentions and preferences. Therefore, the purely economic analysis is always incomplete. However, the effective introduction of psychological examination into the spectrum of scientific instruments used can contribute to identifying both explicit and implicit factors affecting the ultimate people’s behavior and choices.

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The author offers to use the indifference curves for psychologists and economists to determine those spheres where they intersect with one another. According to this preliminary analysis, the optimal combination of psychological and economic methods of analysis may be determined. Moreover, it is also necessary to consider the actual scientific area of analysis as in some cases economics should occupy the central role while in others it should only support the general psychological implications (Nar, 2015). The investigation of the expected utility, gains, and losses serves as a key indicator of the applicability of the selected tools to people’s experience interpretation.

Although psychological aspects are relevant in different socio-economic contexts, Nar (2015) suggests the psychological analysis of taxation is the most accurate and pertinent. He supports his perspective by appealing to the classical philosophers and economists, such as Hobbes and Smith, to justify the existence and long-term effects of psychology on people’s taxation decisions. In particular, it is reasonable to evaluate the essence of such a concept as tax amnesty. It refers to the option of covering one’s debt with the amount that is lower than the current debt (Nar, 2015). Specifically, individuals obtain the possibility of economizing on the potential late fees and other penalties.

Nar (2015) suggests that everyone improves his/her previous psychological conditions as a result of implementing tax amnesty. Tax payers receive an opportunity to fulfill their financial obligations without suffering extra costs and paying additional fees while the government collects its funds within the minimum possible amount of time. The author suggests that relying exclusively on economic considerations does not lead to comprehending the motives of all the parties involved (Nar, 2015). In contrast, the introduction of proper psychological motives both explains the presence of tax amnesty and serves as an indicator of further reforms in this sphere including potential expansion of such practices.

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In general, it seems that the general line of analysis presented by the author is correct. All economic agents demonstrate purposeful behavior and try to achieve their goals in an optimal way. However, it is also reasonable to comprehend the structure and essence of people’s underlying motives and preferences. The author’s belief about the plausibility of using psychology for specifying individuals’ intentions is justified and contributes to a more realistic picture of people’s behavior and responses. Moreover, it does not create any difficulties with implementing the traditional economic framework for assessing the expected benefits and risks related to a specific mode of behavior.

It is also possible to apply the proposed combination of psychological and economic elements to the problem of tax amnesty. Although such practices are comparatively widespread, the ultimate motives of economic agents’ desire to adopt them remain unclear. The utilization of the concepts from psychology indicates that both parties involved obtain substantial psychological benefits (Nar, 2015). However, the author’s claim about the need for substituting the psychological analysis of assessing the options associated with tax amnesty for the economic one is not properly justified.

The reason is that the pure economic analysis can also be helpful in assessing the economic agents’ motives and incentives. In particular, it is possible to consider their alternative costs associated with the opportunities forgone, which also contributes to the better understanding of their choices. In particular, the comparison between the alternative costs and the perceived risks of tax collection explains the motives of the government. Correspondingly, the comprehension of the need for paying taxes and the possibility to economize some fraction of costs explains the motivation of tax payers. Therefore, it is necessary to combine both psychological and economic analyses for comprehending economic agents’ motives.

In conclusion, psychological concepts and elements can be extremely helpful in explaining people’s underlying motives and intentions. It is evident that their ultimate intentions do not emerge spontaneously but reflect individual psychological reactions to the existing opportunities and threats. The case of tax amnesty is an appropriate example of specifying the motives and actions of different people. However, it should not be viewed as the only form of comprehending economic agents’ intentions. The traditional economic analysis and the well-developed concepts of alternative costs, benefits, and risks may also be beneficial for clarifying and predicting individuals’ behavior. The rational combination of both approaches may contribute to complete and realistic comprehension of the structure of people’s motives and preferences in this field.

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