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Prodigality and myopia. Two rationales for social security

  • PESTIEAUÂ , Pierre

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • POSSENÂ , UriÂ

    (Cornell University)

Among the rationales for social security, there is the fact that some people have to be forced to save. To explain undersaving, rational prodigality and hyperbolic preferences are often cited but treated separably. In this paper we study those two particular behaviors that lead to forced saving within an optimal income tax second-best setting.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2008011.

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Date of creation: 01 Mar 2008
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Handle: RePEc:cor:louvco:2008011
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  1. George-Marios Angeletos, 2001. "The Hyberbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 47-68, Summer.
  2. Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
  3. Ted O'Donoghue & Matthew Rabin, 2001. "Choice And Procrastination," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 121-160, February.
  4. Feldstein, Martin S, 1985. "The Optimal Level of Social Security Benefits," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 303-20, May.
  5. Diamond, Peter & Koszegi, Botond, 2003. "Quasi-hyperbolic discounting and retirement," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1839-1872, September.
  6. Homburg, Stefan, 2000. "Compulsory savings in the welfare state," Journal of Public Economics, Elsevier, vol. 77(2), pages 233-239, August.
  7. Jakob von Weizsäcker, 2003. "The Hayek Pension: An efficient minimum pension to complement the welfare state," CESifo Working Paper Series 1064, CESifo Group Munich.
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