Hyperbolic discounting and uniform savings floors
AbstractPrevious research suggests that, in partial equilibrium, individuals whose decision-making exhibits a present-bias--such as hyperbolic discounters who tend to over-consume--will be in favor of having a floor imposed on their savings. In this paper, I show it is quite difficult for the introduction of a savings floor to be Pareto-improving in general equilibrium. Indeed, a necessary condition for the floor to be Pareto-improving is that it is high enough to be binding for all individuals. Even in that case, because the equilibrium interest rate is affected by the level of the savings floor, some individuals may prefer to commit to a future time path of consumption by facing a high interest rate (and no floor) rather than a high floor.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2007-59.
Date of creation: 2007
Date of revision:
Other versions of this item:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- H0 - Public Economics - - General
- H4 - Public Economics - - Publicly Provided Goods
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-01-05 (All new papers)
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