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On Myopia as Rationale for Social Security

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  • Torben Andersen
  • Joydeep Bhattacharya

Abstract

This paper revisits the role played by myopia in generating a theoretical rationale for pay-as-you-go social security in dynamically efficient economies. Contrary to received wisdom, if the real interest rate is exogenously fixed, enough myopia may justify public pensions but never alongside positive private savings. With sufficient myopia, co-existence of positive optimal pensions and positive private saving is possible if the real interest rate on saving evolves endogenously, as in a model with a neoclassical technology.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2401.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2401

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Keywords: myopia; pensions; social security; dynamic efficiency;

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References

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  1. 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.
  2. Jose Apesteguia & Miguel Ballester, 2009. "A theory of reference-dependent behavior," Economic Theory, Springer, Springer, vol. 40(3), pages 427-455, September.
  3. Helmuth Cremer & Philippe De Donder & Dario Maldonado & Pierre Pestieau, 2009. "Forced Saving, Redistribution, and Nonlinear Social Security Schemes," Southern Economic Journal, Southern Economic Association, vol. 76(1), pages 86-98, July.
  4. Faruk Gul & Wolfgang Pesendorfer, 2007. "Welfare without Happiness," American Economic Review, American Economic Association, American Economic Association, vol. 97(2), pages 471-476, May.
  5. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521806428.
  6. Jappelli, Tullio & Pagano, Marco, 1988. "Consumption and Capital Market Imperfection: An International Comparison," CEPR Discussion Papers, C.E.P.R. Discussion Papers 244, C.E.P.R. Discussion Papers.
  7. Fernando Perera-Tallo & Hideo Konishi, 1997. "Existence of steady - state equium in an overlapping-generations model with production (*)," Economic Theory, Springer, Springer, vol. 9(3), pages 529-537.
  8. Louis Kaplow, 2006. "Myopia and the Effects of Social Security and Capital Taxation on Labor Supply," NBER Working Papers 12452, National Bureau of Economic Research, Inc.
  9. Laurence J. Kotlikoff, 1987. "Justifying Public Provision of Social Security," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 6(4), pages 674-696.
  10. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 66, pages 467.
  11. Torben M. Andersen & Joydeep Bhattacharya, 2009. "Unfunded pensions and endogenous labor supply," Economics Working Papers, School of Economics and Management, University of Aarhus 2009-16, School of Economics and Management, University of Aarhus.
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Cited by:
  1. LEROUX, Marie-Louise & PESTIEAU, Pierre & PONTHIERE, Grégory, . "Optimal linear taxation under endogenous longevity," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -2268, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Bhattacharya, Joydeep & Andersen, Torben M, 2012. "Unfunded Pensions and Endogenous Labor Supply," Staff General Research Papers, Iowa State University, Department of Economics 34912, Iowa State University, Department of Economics.
  3. Driscoll, John C. & Holden, Steinar, 2014. "Behavioral Economics and Macroeconomic Models," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2014-43, Board of Governors of the Federal Reserve System (U.S.).
  4. D'Orlando, Fabio & Sanfilippo, Eleonora, 2010. "Behavioral foundations for the Keynesian consumption function," Journal of Economic Psychology, Elsevier, Elsevier, vol. 31(6), pages 1035-1046, December.
  5. Min Wang, 2014. "Optimal education policies under endogenous borrowing constraints," Economic Theory, Springer, Springer, vol. 55(1), pages 135-159, January.

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