Fiscal Policy as a Temptation Control Device
We formulate an overlapping generations model with temptation and self-control preferences and incomplete market for commitment devices to study the role of two fiscal programs: social security and saving subsidy. In our environment, the distortions created by such fiscal programs work as a corrective tool that mitigates the adverse effect of succumbing to temptation on inter-temporal allocation and releases severity of self-control problem. Our results indicate that both fiscal programs potentially lead to welfare gains; however, the driving mechanisms are different. Welfare gains associated with a social security program result mainly from releasing self-control costs while welfare gains associated with a saving subsidy program are mainly driven by mitigating inter-temporal allocation distortion. In addition, we also find that the direction and size of welfare effects vary substantially when allowing for different tax-financing instruments as well as when accounting for general equilibrium price adjustments.
|Date of creation:||Nov 2012|
|Contact details of provider:|| Postal: Canberra, ACT 2601|
Phone: +61 2 6125 3807
Fax: +61 2 6125 0744
Web page: http://rse.anu.edu.au/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:acb:cbeeco:2012-595. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.