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Optimal taxes and pensions in a society with myopic agents

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  • Kerstin Roeder

    (Universität Augsburg)

Abstract

This paper derives the optimal pension and tax parameters in a society where individuals differ in two characteristics: rationality and productivity. Rational agents, if not liquidity constrained, smooth consumption over their life-cycle. Myopic agents, by contrast, have ex ante a strong preference for the present and undertake no savings, even though, ex post they regret their decision. Given a paternalistic social objective aiming at maximizing the sum over ex post utilities, this paper shows how both transfer systems interact in their degree of redistribution and generosity. Moreover, it reveals how the optimal policy parameters change if capital markets are imperfect, implying that agents cannot borrow against their retirement benefits. Analytical and numerical results show that in some cases only one transfer system prevails.

Suggested Citation

  • Kerstin Roeder, 2009. "Optimal taxes and pensions in a society with myopic agents," Working Papers 2009/28, Institut d'Economia de Barcelona (IEB).
    • Handle: RePEc:ieb:wpaper:doc2009-28
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    Cited by:

    1. Gerasimos T. SOLDATOS, 2015. "Law, Coercion And Socioeconomic Equilibrium," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 16, pages 39-50, December.
    2. Soldatos, Gerasimos T., 2015. "Law, Coercion, And Socioeconomic Equilibrium," MPRA Paper 68953, University Library of Munich, Germany.

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    More about this item

    Keywords

    Social security; redistributive taxation; myopia; credit constraints;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • 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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