Uncertainty in the theory of public finance

Abstract

This paper discusses the role that the economics of uncertainty has played in the theory of public finance. From being mostly concerned with its choice-theoretic foundations in the 1950s and ‘60s, the theory of expected utility maximization and risk averse behaviour has contributed decisively to the development of several areas of the theory of public finance. Three of these have been chosen here to illustrate the general point: Taxation and risk taking, the role of uncertainty in public expenditure and the theory of tax evasion and compliance.