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Forced saving, redistribution and nonlinear social security schemes

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Author Info

  • CREMER, Helmuth

    (Toulouse School of Economics)

  • DE DONDER, Philippe

    (Toulouse School of Economics)

  • MALDONADO, Dario

    (Universidad del Rosario)

  • PESTIEAU, Pierre

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

Abstract

This paper studies the design of a nonlinear social security scheme in a society where individuals differ in two respects: productivity and degree of myopia. Myopic individuals may not save "enough" for their retirement because their "myopic self" emerges when labor supply and savings decisions are made. The social welfare function is paternalistic: the rate of time preference of the far-sighted (which corresponds to the "true" preferences of the myopics) is used for both types. We show that the paternalistic solution does not necessarily imply forced savings for the myopics. This is because paternalistic considerations are mitigated or even outweighed by incentive effects. Our numerical results suggest that as the number of myopic individuals increases, there is less redistribution and more forced saving. Furthermore, as the number of myopic increases, the desirability of social security (measured by the difference between social welfare with and without social security) increases.

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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 2008020.

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Date of creation: 01 Mar 2008
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Handle: RePEc:cor:louvco:2008020

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

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  1. CREMER, Helmuth & PESTIEAU, Pierre & ROCHET, Jean-Charles, 1999. "Direct versus indirect taxation: the design of the tax structure revisited," CORE Discussion Papers 1999010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Ayse Imrohoroglu & Selahattin Imrohoroglu & Douglas H. Joines, 2003. "Time-Inconsistent Preferences And Social Security," The Quarterly Journal of Economics, MIT Press, vol. 118(2), pages 745-784, May.
  3. CREMER, Helmuth & PESTIEAU, Pierre & ROCHET, Jean-Charles, . "Capital income taxation when inherited wealth is not observable," CORE Discussion Papers RP -1700, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Helmuth Cremer & Philippe De Donder & Dario Maldonado & Pierre Pestieau, 2007. "Voting over type and generosity of a pension system when some individuals are myopic," NBER Chapters, in: Trans-Atlantic Public Economics Seminar (TAPES), Public Policy and Retirement, pages 2041-2061 National Bureau of Economic Research, Inc.
  5. Diamond, Peter & Koszegi, Botond, 2003. "Quasi-hyperbolic discounting and retirement," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1839-1872, September.
  6. Feldstein, Martin S, 1985. "The Optimal Level of Social Security Benefits," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 303-20, May.
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Citations

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Cited by:
  1. Kerstin Roeder, 2009. "Optimal taxes and pensions in a society with myopic agents," Working Papers 2009/28, Institut d'Economia de Barcelona (IEB).
  2. 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).
  3. Cremer, Helmuth & Roeder, Kerstin, 2013. "Long-term care policy, myopia and redistribution," Journal of Public Economics, Elsevier, vol. 108(C), pages 33-43.
  4. Anderson, Torben M. & Bhattacharya, Joydeep, 2008. "On Myopia As Rationale for Social Security," Staff General Research Papers 12985, Iowa State University, Department of Economics.
  5. Frank Caliendo & Emin Gahramanov, 2013. "Myopia and pensions in general equilibrium," Journal of Economics and Finance, Springer, vol. 37(3), pages 375-401, July.

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