Habit Formation and Labor Supply
AbstractThis paper shows that the combination of habit formation - present consumption creating additional consumption needs in the future - and myopia may explain why some retirees are forced to ‘unretire’, i.e., unexpectedly return to work. It also shows that when myopia about habit formation leads to unretirement there is a case for government's intervention. In a first-best setting the optimal solution can be decentralized by a simple ‘Pigouvian’ (paternalistic) consumption tax (along with suitable lump-sum taxes). In a second-best setting, when personalized lump-sum transfers are not available, consumption taxes may have conflicting paternalistic and redistributive effects. We study the design of consumption taxes in such a setting when myopic individuals differ in productivity.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2351.
Date of creation: 2008
Date of revision:
habit formation; myopia; unretiring;
Other versions of this item:
- Cremer, Helmuth & De Donder, Philippe & Maldonado, DarÃo & Pestieau, Pierre, 2008. "Habit Formation and Labour Supply," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6776, C.E.P.R. Discussion Papers.
- CREMER, Helmuth & DE DONDER, Philippe & MALDONADO, Dario & PESTIEAU, Pierre, 2008. "Habit formation and labor supply," CORE Discussion Papers, UniversitÃ© catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2008038, UniversitÃ© catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jean-Marie Lozachmeur, 2006. "Optimal Age-Specific Income Taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(4), pages 697-711, October.
- Hammond, Peter & Myles, Gareth (ed.), 2000. "Incentives, Organization, and Public Economics: Papers in Honour of Sir James Mirrlees," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199242290, October.
- Ricky Kanabar, 2012.
"Unretirement in England: An empirical perspective,"
Discussion Papers, Department of Economics, University of York
12/31, Department of Economics, University of York.
- Ricky Kanabar, 2013. "Unretirement in England: An Empirical Perspective," Discussion Papers, Department of Economics, University of York 13/25, Department of Economics, University of York.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).
If references are entirely missing, you can add them using this form.