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Forced Saving, Redistribution, and Nonlinear Social Security Schemes

  • Helmuth Cremer

    ()

    (Toulouse School of Economics (GREMAQ, IDEI, and Institut Universitaire de France), 31000 Toulouse, France)

  • Philippe De Donder

    (Toulouse School of Economics (GREMAQ-CNRS and IDEI), 31000 Toulouse, France.)

  • Dario Maldonado

    (Department of Economics and CeiBA-Complejidad, Universidad del Rosario, Bogota´, Colombia.)

  • Pierre Pestieau

    (CREPP, HEC-Management School, University of Liege; CORE, Universite´ Catholique de Louvain; PSE and CEPR)

This paper studies the design of nonlinear social security schemes when individuals differ in productivity and in their degree of myopia. Myopic individuals may not save ‘‘enough’’ for their retirement. The welfare function is paternalistic: The rate of time preference of the farsighted is used for both types. We show that the solution does not necessarily imply forced savings for the myopics: Paternalistic considerations are mitigated by incentive effects. Numerical results suggest that as the proportion of myopic individuals increases, there is less redistribution and more forced saving, and the desirability of social security increases.

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File URL: http://dx.doi.org/10.4284/sej.2009.76.1.86
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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 76 (2009)
Issue (Month): 1 (July)
Pages: 86-98

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Handle: RePEc:sej:ancoec:v:76:1:y:2009:p:86-98
Contact details of provider: Web page: http://www.southerneconomic.org/

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  1. CREMER, Helmuth & PESTIEAU , Pierre & ROCHET, Jean-Charles, . "Direct versus indirect taxation: the design of the tax structure revisited," CORE Discussion Papers RP 1528, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. CREMER, Helmuth & DE DONDER, Philippe & MALDONADO, Dario & PESTIEAU, Pierre, 2006. "Voting over type and generosity of a pension system when some individuals are myopic," CORE Discussion Papers 2006079, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Cremer, Helmuth & Pestieau, Pierre & Rochet, Jean-Charles, 1999. "Capital Income Taxation when Inherited wealth is not Observable," IDEI Working Papers 109, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2001.
  4. Ayşe İmrohoroğlu & Selahattin İmrohoroğlu & Douglas H. Joines, 2003. "Time-Inconsistent Preferences and Social Security," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 745-784.
  5. Sanna Tenhunen & Matti Tuomala, 2007. "On optimal lifetime redistribution policy," Working Papers 0750, University of Tampere, School of Management, Economics.
  6. Ayse Imrohoroglu & Selahattin Imrohoroglu & Douglas H. Joines, 2000. "Time inconsistent preferences and Social Security," Discussion Paper / Institute for Empirical Macroeconomics 136, Federal Reserve Bank of Minneapolis.
  7. Diamond, Peter & Koszegi, Botond, 2003. "Quasi-hyperbolic discounting and retirement," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1839-1872, September.
  8. Martin Feldstein, 1985. "The Optimal Level of Social Security Benefits," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 303-320.
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