Limited computational ability and social security
AbstractWe revisit the role of social security in countering inadequate saving for retirement. We compute the optimal social security tax rate for households who lack the computational ability to solve dynamic optimization problems. Instead, they follow the simple rule of thumb of consuming and saving a fixed fraction of disposable income. This departs from the tradition of computing the optimal tax rate when households suffer from some type of behavioral bias yet possess the ability to solve dynamic optimization problems. Our general equilibrium model is calibrated to the moments of the distribution of saving rates in the US, and our results are generally supportive of a social security program as large as the one in the US. Copyright Springer Science+Business Media, LLC 2013
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Bibliographic InfoArticle provided by Springer in its journal International Tax and Public Finance.
Volume (Year): 20 (2013)
Issue (Month): 3 (June)
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Web page: http://www.springerlink.com/link.asp?id=102915
Rule-of-thumb consumption and saving; Optimal social security; General equilibrium calibration; C61; D91; H55;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
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