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Forced Saving, Redistribution and Nonlinear Social Security Schemes

  • Cremer, Helmuth
  • De Donder, Philippe
  • Maldonado, Darío
  • Pestieau, Pierre

This paper studies the design of a nonlinear social security scheme in a society where individuals differ in two respects: productivity and degree of myopia. Myopic individuals may not save 'enough' for their retirement because their 'myopic self' emerges when labor supply and savings decisions are made. The social welfare function is paternalistic: the rate of time preference of the far-sighted (which corresponds to the 'true' preferences of the myopics) is used for both types. We show that the paternalistic solution does not necessarily imply forced savings for the myopics. This is because paternalistic considerations are mitigated or even outweighed by incentive effects. Our numerical results suggest that as the number of myopic individuals increases, there is less redistribution and more forced saving. Furthermore, as the number of myopic increases, the desirability of social security (measured by the difference between social welfare with and without social security) increases.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6775.

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Date of creation: Apr 2008
Date of revision:
Handle: RePEc:cpr:ceprdp:6775
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  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. CREMER, Helmuth & PESTIEAU, Pierre & ROCHET, Jean-Charles, . "Capital income taxation when inherited wealth is not observable," CORE Discussion Papers RP 1700, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. 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.
  4. Sanna Tenhunen & Matti Tuomala, 2007. "On optimal lifetime redistribution policy," Working Papers 0750, University of Tampere, School of Management, Economics.
  5. 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 781-99, August.
  6. Diamond, Peter & Koszegi, Botond, 2003. "Quasi-hyperbolic discounting and retirement," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1839-1872, September.
  7. repec:oup:qjecon:v:118:y:2003:i:2:p:745-784 is not listed on IDEAS
  8. repec:tpr:qjecon:v:118:y:2003:i:2:p:745-784 is not listed on IDEAS
  9. repec:oup:qjecon:v:100:y:1985:i:2:p:303-20 is not listed on IDEAS
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