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Forced Saving, Redistribution, and Nonlinear Social Security Schemes

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  • Helmuth Cremer

    ()
    (Toulouse School of Economics (GREMAQ, IDEI, and Institut Universitaire de France), 31000 Toulouse, France)

  • Philippe De Donder

    (Toulouse School of Economics (GREMAQ-CNRS and IDEI), 31000 Toulouse, France.)

  • Dario Maldonado

    (Department of Economics and CeiBA-Complejidad, Universidad del Rosario, Bogota´, Colombia.)

  • Pierre Pestieau

    (CREPP, HEC-Management School, University of Liege; CORE, Universite´ Catholique de Louvain; PSE and CEPR)

Abstract

This paper studies the design of nonlinear social security schemes when individuals differ in productivity and in their degree of myopia. Myopic individuals may not save ‘‘enough’’ for their retirement. The welfare function is paternalistic: The rate of time preference of the farsighted is used for both types. We show that the solution does not necessarily imply forced savings for the myopics: Paternalistic considerations are mitigated by incentive effects. Numerical results suggest that as the proportion of myopic individuals increases, there is less redistribution and more forced saving, and the desirability of social security increases.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 76 (2009)
Issue (Month): 1 (July)
Pages: 86-98

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Handle: RePEc:sej:ancoec:v:76:1:y:2009:p:86-98

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References

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  1. Cremer, Helmuth & Pestieau, Pierre & Rochet, Jean-Charles, 2001. "Direct versus Indirect Taxation: The Design of the Tax Structure Revisted," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 781-99, August.
  2. Ayse Imrohoroglu & Selahattin Imrohoroglu & Douglas H. Joines, 2003. "Time-Inconsistent Preferences And Social Security," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(2), pages 745-784, May.
  3. CREMER, Helmuth & PESTIEAU, Pierre & ROCHET, Jean-Charles, 2001. "Capital income taxation when inherited wealth is not observable," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2001020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Diamond, Peter & Koszegi, Botond, 2003. "Quasi-hyperbolic discounting and retirement," Journal of Public Economics, Elsevier, Elsevier, vol. 87(9-10), pages 1839-1872, September.
  5. Helmut Cremer & Philippe De Donder & Dario Maldonado & Pierre Pestieau, 2007. "Voting over type and generosity of a pension system when some individuals are myopic," Working Papers 23283, Institut National de la Recherche Agronomique, France.
  6. Feldstein, Martin S, 1985. "The Optimal Level of Social Security Benefits," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(2), pages 303-20, May.
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Cited by:
  1. Cremer, Helmuth & De Donder, Philippe & Maldonado, Darío & Pestieau, Pierre, 2006. "Designing a Linear Pension Scheme with Forced Savings and Wage Heterogeneity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5914, C.E.P.R. Discussion Papers.
  2. Kerstin Roeder, 2009. "Optimal taxes and pensions in a society with myopic agents," Working Papers 2009/28, Institut d'Economia de Barcelona (IEB).
  3. Cremer, Helmuth & Roeder, Kerstin, 2013. "Long-term care policy, myopia and redistribution," Munich Reprints in Economics, University of Munich, Department of Economics 20065, University of Munich, Department of Economics.
  4. Torben Andersen & Joydeep Bhattacharya, 2011. "On myopia as rationale for social security," Economic Theory, Springer, Springer, vol. 47(1), pages 135-158, May.
  5. Matti Tuomala & Sanna Tenhunen, 2013. "On the design of an optimal non-linear tax/pension system with habit formation," International Tax and Public Finance, Springer, Springer, vol. 20(3), pages 485-512, June.
  6. Roeder, Kerstin, 2013. "Optimal taxes and pensions with myopic agents," Munich Reprints in Economics, University of Munich, Department of Economics 19747, University of Munich, Department of Economics.
  7. Frank Caliendo & Emin Gahramanov, 2013. "Myopia and pensions in general equilibrium," Journal of Economics and Finance, Springer, Springer, vol. 37(3), pages 375-401, July.
  8. Lasse Frisgaard Gunnersen & Bo Sandemann Rasmussen, 2012. "Optimal Tax-Transfer Policies, Life-Cycle Labour Supply and Present-Biased Preferences," Economics Working Papers, School of Economics and Management, University of Aarhus 2012-12, School of Economics and Management, University of Aarhus.

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