The Wealth Effect and Long Term Policy Problems
The world’s most pressing problems require that citizens adopt costly policies today to avoid future calamity. Yet, we know little about what motivates citizens to support long-term investments with high upfront costs. In this paper, I build on behavioral economics literature that suggests future-oriented microeconomics behavior, like buying insurance or transitioning careers, increases with perceptions of individual or family wealth. Similarly, I argue that individuals are more receptive to long-term public policy investments when they perceive greater wealth and financial security in the short run. I test the implications of this argument using observational and experimental data. Importantly, I use an innovative survey treatment that strongly influences perceptions of individual wealth inspired by consumer behavior literature. Citizens who are treated to believe they are wealthier than they previously thought are more likely to support public debt reduction, investments to mitigate climate change, and local long-term investments. Those who believe they are poorer than previously thought, are significantly less likely to support these policies. The paper has implications for how business cycles influence political pressure for temporal dynamic public policies.