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Prodigality and myopia. Two rationales for social security

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  • PESTIEAU , Pierre

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • POSSEN , Uri

    (Cornell University)

Abstract

Among the rationales for social security, there is the fact that some people have to be forced to save. To explain undersaving, rational prodigality and hyperbolic preferences are often cited but treated separably. In this paper we study those two particular behaviors that lead to forced saving within an optimal income tax second-best setting.

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File URL: http://www.uclouvain.be/cps/ucl/doc/core/documents/coreDP2008_11.pdf
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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2008011.

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Date of creation: 01 Mar 2008
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Handle: RePEc:cor:louvco:2008011

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Keywords: social security; myopia; dual-self model; prodigality.;

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References

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  1. Jakob von Weizsäcker, 2003. "The Hayek Pension: An efficient minimum pension to complement the welfare state," CESifo Working Paper Series 1064, CESifo Group Munich.
  2. Homburg, Stefan, 2000. "Compulsory savings in the welfare state," Journal of Public Economics, Elsevier, vol. 77(2), pages 233-239, August.
  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. O'Donoghue, Ted & Rabin, Matthew, 2000. "Choice and Procrastination," Department of Economics, Working Paper Series qt5r26k54p, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  5. Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
  6. Martin Feldstein, 1986. "The Optimal Level of Social Security Benefits," NBER Working Papers 0970, National Bureau of Economic Research, Inc.
  7. George-Marios Angeletos, 2001. "The Hyberbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 47-68, Summer.
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Cited by:
  1. Cremer, Helmuth & Pestieau, Pierre, 2011. "Myopia, redistribution and pensions," European Economic Review, Elsevier, vol. 55(2), pages 165-175, February.
  2. CREMER, Helmuth & DE DONDER, Philippe & MALDONADO, Dario & PESTIEAU, Pierre, . "Designing a linear pension scheme with forced savings and wage heterogeneity," CORE Discussion Papers RP -2040, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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