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Targeted Savings and Labor Supply

  • Louis Kaplow

Substantial evidence suggests that savings behavior may depart from neoclassical optimization. This article examines the implications of raising the savings rate - whether through social security, retirement plans, or otherwise - for labor supply, where labor supply is determined by behavioral utility functions that reflect the non-neoclassical character of savings behavior. Under one formulation, raising the targeted savings rate has the same effect on labor supply as that of raising the labor income tax rate; under a second, raising the targeted savings rate has no effect on labor supply; and under a third, raising the targeted savings rate increases labor supply regardless of the slope of the labor supply curve. Effects on labor supply are particularly consequential because of the significant preexisting distortion due to labor income taxation.

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File URL: http://www.nber.org/papers/w15656.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15656.

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Date of creation: Jan 2010
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Publication status: published as Targeted Savings and Labor Supply, International Tax and Public Finance , vol. 18, pp. 507-518 (2011).
Handle: RePEc:nbr:nberwo:15656
Note: LS PE
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  1. B. Douglas Bernheim, 1999. "Taxation and Saving," NBER Working Papers 7061, National Bureau of Economic Research, Inc.
  2. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
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  4. John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian, 2006. "Simplification and Saving," NBER Working Papers 12659, National Bureau of Economic Research, Inc.
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  7. Raj Chetty, 2003. "A New Method of Estimating Risk Aversion," NBER Working Papers 9988, National Bureau of Economic Research, Inc.
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  10. Sarah Smith, 2006. "The Retirement-Consumption Puzzle and Involuntary Early Retirement: Evidence from the British Household Panel Survey," Economic Journal, Royal Economic Society, vol. 116(510), pages C130-C148, 03.
  11. Brigitte C. Madrian & Dennis F. Shea, 2000. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," NBER Working Papers 7682, National Bureau of Economic Research, Inc.
  12. Jeff Dominitz & Charles F. Manski & Jordan Heinz, 2003. ""Will Social Security Be There For You?": How Americans Perceive Their Benefits," NBER Working Papers 9798, National Bureau of Economic Research, Inc.
  13. John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian, 2005. "The importance of default options for retirement saving outcomes: evidence from the United States," CeRP Working Papers 43, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  14. Martin Feldstein & Jeffrey B. Liebman, 2001. "Social Security," NBER Working Papers 8451, National Bureau of Economic Research, Inc.
    • 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.
  15. James Banks & Richard Blundell & Sarah Tanner, 1995. "Is there a retirement-savings puzzle?," IFS Working Papers W95/04, Institute for Fiscal Studies.
  16. Mark Aguiar & Erik Hurst, 2005. "Consumption versus Expenditure," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 919-948, October.
  17. Louis Kaplow, 2006. "Myopia and the Effects of Social Security and Capital Taxation on Labor Supply," NBER Working Papers 12452, National Bureau of Economic Research, Inc.
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