A Simple Model of Tax-Favored Retirement Accounts
AbstractTo defend myopic workers against themselves, the government introduces a mandatory system but to help savers, it adds tax-favored retirement accounts. In a very simple model, where benefits are proportional to contributions, we compare three extreme systems: (i) the pure mandatory system, (ii) the asymmetric system, where only the savers participate in the voluntary system, (iii) the symmetric system, where both types participate proportionally to their wages. The symmetric voluntary system is welfare-superior to the asymmetric one as well as to the pure mandatory system, which in turn are equivalent to each other.
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Bibliographic InfoPaper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 0915.
Length: 20 pages
Date of creation: Aug 2009
Date of revision:
mandatory pensions; tax-favored retirement accounts; voluntary contributions; subsidies.;
Find related papers by JEL classification:
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
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