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Forced Saving, Redistribution, and Nonlinear Social Security Schemes

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Author Info

  • 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 & De Donder, Philippe & Maldonado, Darío & Pestieau, Pierre, 2006. "Voting Over Type and Generosity of a Pension System When Some Individuals are Myopic," CEPR Discussion Papers 5923, C.E.P.R. Discussion Papers.
  2. Ayse Imrohoroglu & Selahattin Imrohoroglu & Douglas H. Joines, 2000. "Time inconsistent preferences and Social Security," Discussion Paper / Institute for Empirical Macroeconomics 136, Federal Reserve Bank of Minneapolis.
  3. Diamond, Peter & Koszegi, Botond, 2003. "Quasi-hyperbolic discounting and retirement," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1839-1872, September.
  4. CREMER, Helmuth & PESTIEAU, Pierre & ROCHET, Jean-Charles, 2001. "Capital income taxation when inherited wealth is not observable," CORE Discussion Papers 2001020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Martin Feldstein, 1982. "The Optimal Level of Social Security Benefits," NBER Working Papers 0970, National Bureau of Economic Research, Inc.
  6. CREMER, Helmuth & PESTIEAU , Pierre & ROCHET, Jean-Charles, . "Direct versus indirect taxation: the design of the tax structure revisited," CORE Discussion Papers RP -1528, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Cited by:
  1. CREMER, Helmuth & DE DONDER, Philippe & MALDONADO, Dario & PESTIEAU, Pierre, 2006. "Designing a linear pension scheme with forced savings and wage heterogeneity," CORE Discussion Papers 2006047, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Anderson, Torben M. & Bhattacharya, Joydeep, 2008. "On Myopia As Rationale for Social Security," Staff General Research Papers 12985, Iowa State University, Department of Economics.
  3. Frank Caliendo & Emin Gahramanov, 2013. "Myopia and pensions in general equilibrium," Journal of Economics and Finance, Springer, vol. 37(3), pages 375-401, July.
  4. Kerstin Roeder, 2014. "Optimal taxes and pensions with myopic agents," Social Choice and Welfare, Springer, vol. 42(3), pages 597-618, March.
  5. Lasse Frisgaard Gunnersen & Bo Sandemann Rasmussen, 2012. "Optimal Tax-Transfer Policies, Life-Cycle Labour Supply and Present-Biased Preferences," Economics Working Papers 2012-12, School of Economics and Management, University of Aarhus.
  6. Cremer, Helmuth & Roeder, Kerstin, 2013. "Long-term care policy, myopia and redistribution," Munich Reprints in Economics 20065, University of Munich, Department of Economics.
  7. Kerstin Roeder, 2009. "Optimal taxes and pensions in a society with myopic agents," Working Papers 2009/28, Institut d'Economia de Barcelona (IEB).
  8. 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, vol. 20(3), pages 485-512, June.

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