‘We Will End Up Being a Third Rate Economy … A Banana Republic’: How Behavioural Economics Can Improve Macroeconomic Outcomes

To address the economic problems facing Australia in 1986 required wage restraint, which required in turn overcoming loss aversion by workers with respect to their wages. The Prices and Incomes Accord was able to do this. Attempts to address Australia's current economic problems are stymied by...

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Bibliographic Details
Published inAustralian economic review Vol. 50; no. 2; pp. 137 - 151
Main Author McDonald, Ian M.
Format Journal Article
LanguageEnglish
Published Parkville Blackwell Publishers 01.06.2017
Subjects
Behavioral economics
Economic models
Economic problems
Macroeconomics
Prices
Resistance
Taxation
Voters
Wages & salaries
Australia
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Summary:To address the economic problems facing Australia in 1986 required wage restraint, which required in turn overcoming loss aversion by workers with respect to their wages. The Prices and Incomes Accord was able to do this. Attempts to address Australia's current economic problems are stymied by tax resistance. Addressing tax resistance requires overcoming loss aversion by voters with respect to their post‐tax incomes. The success of the Accord suggests that Accord‐type policies could reduce tax resistance by broadening people's perspective beyond their post‐tax incomes to the broader spread of benefits for them and others.
ISSN:0004-9018
1467-8462
DOI:10.1111/1467-8462.12199