Optimal taxes and pensions in a society with myopic agents
AbstractThis paper derives the optimal pension and tax parameters in a society where individuals differ in two characteristics: rationality and productivity. Rational agents, if not liquidity constrained, smooth consumption over their life-cycle. Myopic agents, by contrast, have ex ante a strong preference for the present and undertake no savings, even though, ex post they regret their decision. Given a paternalistic social objective aiming at maximizing the sum over ex post utilities, this paper shows how both transfer systems interact in their degree of redistribution and generosity. Moreover, it reveals how the optimal policy parameters change if capital markets are imperfect, implying that agents cannot borrow against their retirement benefits. Analytical and numerical results show that in some cases only one transfer system prevails.
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Bibliographic InfoPaper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2009/28.
Length: 34 pages
Date of creation: 2009
Date of revision:
Social security; redistributive taxation; myopia; credit constraints;
Find related papers by JEL classification:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- 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
This paper has been announced in the following NEP Reports:
- NEP-AGE-2009-11-14 (Economics of Ageing)
- NEP-ALL-2009-11-14 (All new papers)
- NEP-MAC-2009-11-14 (Macroeconomics)
- NEP-PUB-2009-11-14 (Public Finance)
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