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Short horizons, time inconsistency, and optimal social security

  • T. Findley

    ()

  • Frank Caliendo

We study the optimal provision of social security in a dynamically efficient economy using a continuous-time overlapping-generations model in which consumers have short planning horizons. The short-horizon mechanism leads to dynamic optimization that is time-inconsistent over the life cycle. Our calibrated general-equilibrium results are generally supportive of social security for a wide array of social welfare functions. Thus, the basic life-cycle model can be augmented with only this slight twist in order to rationalize a social security program with the current U.S. tax rate. Copyright Springer Science+Business Media, LLC 2009

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File URL: http://hdl.handle.net/10.1007/s10797-009-9115-2
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Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 16 (2009)
Issue (Month): 4 (August)
Pages: 487-513

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Handle: RePEc:kap:itaxpf:v:16:y:2009:i:4:p:487-513
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