Behavioral Insights for Foresighted Public Finance

Behavioral insights are becoming part of the policy toolkit in countries around the world, and the IDB has positioned itself at the forefront of this movement in Latin America and the Caribbean. This policy brief discusses some of the reasons behind its success and serves as an encouragement for policymakers in the region to adopt some of these tools. In a region with numerous unfulfilled needs and limited resources, behavioral insights can play an important role for improving public finance in the region. Interventions leveraging behavioral insights can increase revenues by improving tax compliance and boosting tax morale. They can also improve the efficiency of public spending by encouraging preventive healthcare activities (involving vaccines, diet, exercise, etc.), promoting energy and water conservation, lowering traffic fatalities, and reducing teacher absenteeism, among other means. By surveying the evidence coming from interventions in the field in Latin America and the Caribbean, as well as other parts of the world, this policy brief makes a strong case to the region to embrace behavioral insights and design behaviorally informed policies.