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Optimal Redistributive Pensions with Temptation and Costly Self-Control

  • Pier-Andre Bouchard St-Amant

    ()

    (INET, Columbia and Queen's)

  • Jean-Denis Garon

    ()

    (UQAM)

We examine how the introduction of self-control preferences influences the trade-off between two fundamental components of a public pension system: the contribution rate and its degree of redistribution. The pension regime affects individuals' welfare by altering how yielding to temptation (i.e. not saving, or saving less) is attractive. We show that proportional taxation increases the cost of self-control, and that this adverse effect is more acute when public pensions become more redistributive. We examine how the introduction of self-control preferences influences the trade-off between two fundamental components of a public pension system: the contribution rate and its degree of redistribution. The pension regime affects individuals' welfare by altering how yielding to temptation (i.e. not saving, or saving less) is attractive. We show that proportional taxation increases the cost of self-control, and that this adverse effect is more acute when public pensions become more redistributive.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1311.pdf
File Function: First version 2013
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Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1311.

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Length: 28 pages
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:qed:wpaper:1311
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  1. Diamond, Peter & Koszegi, Botond, 2003. "Quasi-hyperbolic discounting and retirement," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1839-1872, September.
  2. Faruk Gul & Wolfgang Pesendorfer, 2001. "Temptation and Self-Control," Econometrica, Econometric Society, vol. 69(6), pages 1403-1435, November.
  3. Jawwad Noor, 2005. "Commitment and Self-Control," Microeconomics 0509008, EconWPA.
  4. Jonathan Skinner, 2007. "Are You Sure You're Saving Enough for Retirement?," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 59-80, Summer.
  5. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  6. BOADWAY, R. & MARCHAND, M. & PESTIEAU, P. & del MAR RACIONERO, M., 2001. "Optimal redistribution with heterogeneous preferences for leisure," CORE Discussion Papers 2001025, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Alessandro Bucciol, 2012. "Measuring Self-Control Problems: A Structural Estimation," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1084-1115, October.
  8. Kumru, Cagri S. & Thanopoulos, Athanasios C., 2011. "Social security reform with self-control preferences," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 886-899, August.
  9. Diamond, P. A., 1977. "A framework for social security analysis," Journal of Public Economics, Elsevier, vol. 8(3), pages 275-298, December.
  10. Lawrence Kotlikoff & Avia Spivak & Lawrence H. Summers, 1980. "The Adequacy of Savings," Cowles Foundation Discussion Papers 569, Cowles Foundation for Research in Economics, Yale University.
  11. Lindbeck, Assar & Persson, Mats, 2002. "The Gains from Pension Reform," Seminar Papers 712, Stockholm University, Institute for International Economic Studies.
  12. W. Pesendorfer & F. Gul, 1999. "Self-Control and the Theory of Consumption," Princeton Economic Theory Papers 99f2, Economics Department, Princeton University.
  13. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2004. "Are Americans Saving "Optimally" for Retirement?," NBER Working Papers 10260, National Bureau of Economic Research, Inc.
  14. Bucciol, Alessandro, 2011. "A Note On Social Security Welfare With Self-Control Problems," Macroeconomic Dynamics, Cambridge University Press, vol. 15(04), pages 579-594, September.
  15. Kevin X. D. Huang & Zheng Liu & Qi Zhu, 2006. "Temptation and self-control: some evidence and applications," Staff Report 367, Federal Reserve Bank of Minneapolis.
  16. Kumru, Çagri S. & Thanopoulos, Athanasios C., 2008. "Social security and self control preferences," Journal of Economic Dynamics and Control, Elsevier, vol. 32(3), pages 757-778, March.
  17. Per Krusell & Burhanettin Kuruşçu & Anthony A. Smith Jr., 2010. "Temptation and Taxation," Econometrica, Econometric Society, vol. 78(6), pages 2063-2084, November.
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