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Forced saving, redistribution, and nonlinear social security schemes

Author

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  • CREMER, Helmuth
  • De DONDER, Philippe
  • MALDONADO, Dario
  • PESTIEAU, Pierre

Abstract

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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Suggested Citation

  • CREMER, Helmuth & De DONDER, Philippe & MALDONADO, Dario & PESTIEAU, Pierre, 2009. "Forced saving, redistribution, and nonlinear social security schemes," CORE Discussion Papers RP 2147, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvrp:2147
    Note: In : Southern Economic Journal, 76(1), 86-98, 2009
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    File URL: http://dx.doi.org/10.4284/sej.2009.76.1.86
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    References listed on IDEAS

    as
    1. Cremer, Helmuth & De Donder, Philippe & Maldonado, Dario & Pestieau, Pierre, 2007. "Voting over type and generosity of a pension system when some individuals are myopic," Journal of Public Economics, Elsevier, vol. 91(10), pages 2041-2061, November.
    2. Sanna Tenhunen & Matti Tuomala, 2010. "On Optimal Lifetime Redistribution Policy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(1), pages 171-198, February.
    3. Cremer, Helmuth & Pestieau, Pierre & Rochet, Jean-Charles, 2001. "Direct versus Indirect Taxation: The Design of the Tax Structure Revisted," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 781-799, August.
    4. Cremer, Helmuth & Pestieau, Pierre & Rochet, Jean-Charles, 2003. "Capital income taxation when inherited wealth is not observable," Journal of Public Economics, Elsevier, vol. 87(11), pages 2475-2490, October.
    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. Martin Feldstein, 1985. "The Optimal Level of Social Security Benefits," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 303-320.
    7. 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.
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    Citations

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    Cited by:

    1. Torben Andersen & Joydeep Bhattacharya, 2011. "On myopia as rationale for social security," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 47(1), pages 135-158, May.
    2. Helmuth Cremer & Philippe Donder & Dario Maldonado & Pierre Pestieau, 2008. "Designing a linear pension scheme with forced savings and wage heterogeneity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(5), pages 547-562, October.
    3. repec:kap:itaxpf:v:25:y:2018:i:2:d:10.1007_s10797-017-9452-5 is not listed on IDEAS
    4. Bagchi, Shantanu, 2015. "Labor supply and the optimality of Social Security," Journal of Economic Dynamics and Control, Elsevier, vol. 58(C), pages 167-185.
    5. Kerstin Roeder, 2009. "Optimal taxes and pensions in a society with myopic agents," Working Papers 2009/28, Institut d'Economia de Barcelona (IEB).
    6. repec:kap:itaxpf:v:25:y:2018:i:3:d:10.1007_s10797-017-9473-0 is not listed on IDEAS
    7. Cremer, Helmuth & Roeder, Kerstin, 2013. "Long-term care policy, myopia and redistribution," Journal of Public Economics, Elsevier, vol. 108(C), pages 33-43.
    8. Kerstin Roeder, 2014. "Optimal taxes and pensions with myopic agents," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 42(3), pages 597-618, March.
    9. Cremer Helmuth & De Donder Philippe & Maldonado Dario & Pestieau Pierre, 2010. "Commodity Taxation under Habit Formation and Myopia," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-27, September.
    10. Frank Caliendo & Emin Gahramanov, 2013. "Myopia and pensions in general equilibrium," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(3), pages 375-401, July.
    11. Matti Tuomala & Sanna Tenhunen, 2013. "On the design of an optimal non-linear tax/pension system with habit formation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(3), pages 485-512, June.
    12. Lasse Frisgaard Gunnersen & Bo Sandemann Rasmussen, 2012. "Optimal Tax-Transfer Policies, Life-Cycle Labour Supply and Present-Biased Preferences," Economics Working Papers 2012-12, Department of Economics and Business Economics, Aarhus University.
    13. Chu-chuan Cheng & Hsun Chu, 2018. "Optimal policies for sin goods and health care: Tax or subsidy?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(2), pages 412-429, April.

    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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