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Jumping the welfare gap in designing public transfers

Author

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  • Simonovits Andras

    (Institute of Economics, Research Centre for Economic and Regional Studies, Hungarian Academy of Sciences, also Mathematical Institute of Budapest University of Technology)

Abstract

We consider three transfer models with a representative individual who discounts the utility of the merit good with respect to the standard one's. In each model, a paternalistic government taxes the consumer and transfers him additional merit goods in return. The private purchase of the merit goods is cheaper than the transfer. Even if the optimal transfer system is welfare superior to the transfer-free system, a system with much lower transfer may be inferior, therefore this welfare gap should be jumped. Various pension modelers (e.g. Feldstein, 1985; van Groezen, Leers and Meijdam, 2003) overlooked this problem and drew wrong conclusions.

Suggested Citation

  • Simonovits Andras, 2017. "Jumping the welfare gap in designing public transfers," CERS-IE WORKING PAPERS 1707, Institute of Economics, Centre for Economic and Regional Studies.
    • Handle: RePEc:has:discpr:1707
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    References listed on IDEAS

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    1. Cremer, Helmuth & Pestieau, Pierre, 2011. "Myopia, redistribution and pensions," European Economic Review, Elsevier, vol. 55(2), pages 165-175, February.
    2. Feldstein, Martin S, 1987. "Should Social Security Benefits Be Means Tested?," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 468-484, June.
    3. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467-467.
    4. Martin Feldstein, 1985. "The Optimal Level of Social Security Benefits," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(2), pages 303-320.
    5. Andras Simonovits, 2013. "Savings, Child Support, Pensions and Endogenous (and Heterogeneous) Fertility," CERS-IE WORKING PAPERS 1335, Institute of Economics, Centre for Economic and Regional Studies.
    6. van Groezen, Bas & Leers, Theo & Meijdam, Lex, 2003. "Social security and endogenous fertility: pensions and child allowances as siamese twins," Journal of Public Economics, Elsevier, vol. 87(2), pages 233-251, February.
    7. Barr, Nicholas & Diamond, Peter, 2008. "Reforming Pensions: Principles and Policy Choices," OUP Catalogue, Oxford University Press, number 9780195311303, Decembrie.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    transfers; pensions; taxes; social welfare; paternalism;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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