CREMER, Helmuth DE DONDER, Philippe MALDONADO, Dario PESTIEAU, Pierre (UniversitŽ catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
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This paper shows that the combination of habit formation Ð present consumption creating additional consumption needs in the future Ð 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.
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number
2008038.
Find related papers by JEL classification: D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer 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
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