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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 & International Institute of Public Finance 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
DOI: 10.1007/s10797-009-9115-2
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  1. Gourinchas, P.O. & Parker, J.A., 1997. "Consumption Over the Life Cycle," Working papers 9722, Wisconsin Madison - Social Systems.
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  25. Alessandro Bucciol, 2006. "The Roles of Temptation and Social Security in Explaining Individual Behavior," "Marco Fanno" Working Papers 0032, Dipartimento di Scienze Economiche "Marco Fanno".
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