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Forced saving, redistribution, and nonlinear social security schemes

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  • CREMER, Helmuth
  • De DONDER, Philippe
  • MALDONADO, Dario
  • PESTIEAU, Pierre

Abstract

This paper studies the design of nonlinear social security schemes when individuals differ in productivity and in their degree of myopia. Myopic individuals may not save ‘‘enough’’ for their retirement. The welfare function is paternalistic: The rate of time preference of the farsighted is used for both types. We show that the solution does not necessarily imply forced savings for the myopics: Paternalistic considerations are mitigated by incentive effects. Numerical results suggest that as the proportion of myopic individuals increases, there is less redistribution and more forced saving, and the desirability of social security increases.

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File URL: http://dx.doi.org/10.4284/sej.2009.76.1.86
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -2147.

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Handle: RePEc:cor:louvrp:-2147

Note: In : Southern Economic Journal, 76(1), 86-98, 2009
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References

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  1. Cremer, Helmuth & Pestieau, Pierre & Rochet, Jean-Charles, 1999. "Capital Income Taxation when Inherited wealth is not Observable," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 109, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2001.
  2. Cremer, Helmuth & De Donder, Philippe & Maldonado, Dario & Pestieau, Pierre, 2007. "Voting over type and generosity of a pension system when some individuals are myopic," Journal of Public Economics, Elsevier, Elsevier, vol. 91(10), pages 2041-2061, November.
  3. CREMER, Helmuth & PESTIEAU, Pierre & ROCHET, Jean-Charles, 1999. "Direct versus indirect taxation: the design of the tax structure revisited," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1999010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Diamond, Peter & Koszegi, Botond, 2003. "Quasi-hyperbolic discounting and retirement," Journal of Public Economics, Elsevier, Elsevier, vol. 87(9-10), pages 1839-1872, September.
  5. Ayse Imrohoroglu & Selahattin Imrohoroglu & Douglas H. Joines, 2000. "Time inconsistent preferences and Social Security," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 136, Federal Reserve Bank of Minneapolis.
  6. 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.
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Cited by:
  1. Helmuth Cremer & Philippe Donder & Dario Maldonado & Pierre Pestieau, 2008. "Designing a linear pension scheme with forced savings and wage heterogeneity," International Tax and Public Finance, Springer, Springer, vol. 15(5), pages 547-562, October.
  2. Anderson, Torben M. & Bhattacharya, Joydeep, 2008. "On Myopia As Rationale for Social Security," Staff General Research Papers 12985, Iowa State University, Department of Economics.
  3. Frank Caliendo & Emin Gahramanov, 2013. "Myopia and pensions in general equilibrium," Journal of Economics and Finance, Springer, Springer, vol. 37(3), pages 375-401, July.
  4. Cremer, Helmuth & Roeder, Kerstin, 2011. "Long-term care policy, myopia and redistribution," TSE Working Papers, Toulouse School of Economics (TSE) 12-314, Toulouse School of Economics (TSE), revised May 2012.
  5. Kerstin Roeder, 2009. "Optimal taxes and pensions in a society with myopic agents," Working Papers 2009/28, Institut d'Economia de Barcelona (IEB).
  6. 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.
  7. Kerstin Roeder, 2014. "Optimal taxes and pensions with myopic agents," Social Choice and Welfare, Springer, Springer, vol. 42(3), pages 597-618, March.
  8. Lasse Frisgaard Gunnersen & Bo Sandemann Rasmussen, 2012. "Optimal Tax-Transfer Policies, Life-Cycle Labour Supply and Present-Biased Preferences," Economics Working Papers, School of Economics and Management, University of Aarhus 2012-12, School of Economics and Management, University of Aarhus.

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