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18 July 2013

Do governments actually want their people to do the right thing?

In economics, the theory of ‘revealed preference’ asserts that the best of way of telling what consumers prefer (given a choice) is to observe what they actually buy. This seems reasonable enough, so reasonable, in fact, that we should apply the same analysis to governments.

Politicians say all sorts of things about the kind of choices they’d like the rest of us to make – sometimes in a moralising way, more usually in merely urging us to be productive, responsible citizens. But once they’ve done with their pep talks, their real preferences for our behaviour are revealed by the economic incentives – and disincentives – that governments create through the tax system and other policy frameworks.

Writing for the Harvard Business Review, Justin Fox takes at what the American system effectively wants of its people. These are some of his conclusions:

America’s notoriously expensive healthcare arrangements are another consequence of the incentives created by the tax system:

Americans will be needing their healthcare, because it seems that their government also wants them to eat their way into sickness:

So what about Britain? Weighing up the incentives, is there anything that our system obviously does or doesn’t want us to do? Well, there’s one thing that stands out. Our government doesn’t want us to be married. Unlike many other countries, there’s little recognition of marriage in the tax system (at least, not until you’re dead). Furthermore, the benefits system, not to mention housing policy, provides various disincentives to getting married or forming stable cohabiting relationships. And if you’re a married couple where one spouse stays at home to look after young children, then you’ll have your child benefit withdrawn long before a two-earner couple with a higher household income.

Of course, British politicians protest that they want stable families (David Cameron even promised to make Britain the “most family friendly country in Europe”). But if they really mean it, why do they punish people for doing the right thing?


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