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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. BOADWAY, Robin & MARCHAND, Maurice & PESTIEAU , Pierre & RACIONERO, Maria del mar, . "Optimal redistribution with heterogeneous preferences for leisure," CORE Discussion Papers RP -1566, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Laurence J. Kotlikoff & Lawrence H. Summers, 1981. "The Adequacy of Savings," NBER Working Papers 0627, National Bureau of Economic Research, Inc.
  3. Faruk Gul & Wolfgang Pesendorfer, 2004. "Self-Control and the Theory of Consumption," Econometrica, Econometric Society, vol. 72(1), pages 119-158, 01.
  4. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2006. "Are Americans Saving "Optimally" for Retirement?," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 607-643, August.
  5. Per Krusell & Burhanettin Kuruscu & Anthony A. Smith, Jr., 2000. "Temptation and Taxation," GSIA Working Papers 2001-12, Carnegie Mellon University, Tepper School of Business.
  6. Jawwad Noor, 2005. "Commitment and Self-Control," Boston University - Department of Economics - Working Papers Series WP2005-014, Boston University - Department of Economics.
  7. 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.
  8. 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.
  9. Lindbeck, Assar & Persson, Mats, 2002. "The Gains from Pension Reform," Seminar Papers 712, Stockholm University, Institute for International Economic Studies.
  10. Cagri S. Kumru & Athanasios C. Thanopoulos, 2010. "Social Security Reform with Self-Control Preferences," Discussion Papers 2010-11, School of Economics, The University of New South Wales.
  11. Diamond, Peter & Koszegi, Botond, 2003. "Quasi-hyperbolic discounting and retirement," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1839-1872, September.
  12. 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.
  13. W. Pesendorfer & F. Gul, 1999. "Temptation and Self-Control," Princeton Economic Theory Papers 99f1, Economics Department, Princeton University.
  14. Diamond, P. A., 1977. "A framework for social security analysis," Journal of Public Economics, Elsevier, vol. 8(3), pages 275-298, December.
  15. 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.
  16. 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.
  17. 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.
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