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Jumping the welfare gap in designing public transfers

Listed author(s):
  • Simonovits Andras

    ()

    (Institute of Economics, Research Centre for Economic and Regional Studies, Hungarian Academy of Sciences, also Mathematical Institute of Budapest University of Technology)

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    We consider three transfer models with a representative individual who discounts the utility of the merit good with respect to the standard one's. In each model, a paternalistic government taxes the consumer and transfers him additional merit goods in return. The private purchase of the merit goods is cheaper than the transfer. Even if the optimal transfer system is welfare superior to the transfer-free system, a system with much lower transfer may be inferior, therefore this welfare gap should be jumped. Various pension modelers (e.g. Feldstein, 1985; van Groezen, Leers and Meijdam, 2003) overlooked this problem and drew wrong conclusions.

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    File URL: http://econ.core.hu/file/download/mtdp/MTDP1707.pdf
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    Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 1707.

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    Length: 22 pages
    Date of creation: Mar 2017
    Handle: RePEc:has:discpr:1707
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    1. Cremer, Helmuth & Pestieau, Pierre, 2011. "Myopia, redistribution and pensions," European Economic Review, Elsevier, vol. 55(2), pages 165-175, February.
    2. Feldstein, Martin, 1987. "Should Social Security Benefits Be Means Tested?," Scholarly Articles 2770498, Harvard University Department of Economics.
    3. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467-467.
    4. Martin Feldstein, 1985. "The Optimal Level of Social Security Benefits," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 303-320.
    5. Feldstein, Martin S, 1987. "Should Social Security Benefits Be Means Tested?," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 468-484, June.
    6. Andras Simonovits, 2013. "Savings, Child Support, Pensions and Endogenous (and Heterogeneous) Fertility," IEHAS Discussion Papers 1335, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    7. van Groezen, Bas & Leers, Theo & Meijdam, Lex, 2003. "Social security and endogenous fertility: pensions and child allowances as siamese twins," Journal of Public Economics, Elsevier, vol. 87(2), pages 233-251, February.
    8. Barr, Nicholas & Diamond, Peter, 2008. "Reforming Pensions: Principles and Policy Choices," OUP Catalogue, Oxford University Press, number 9780195311303.
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