Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/97468
Authors: 
Bouchard St-Amant, Pier-André
Garon, Jean-Denis
Year of Publication: 
2013
Series/Report no.: 
Queen's Economics Department Working Paper 1311
Abstract: 
We characterize an optimal redistributive pension scheme when individuals face temptation, but can exert costly self-control (as in Gul & Pesendorfer, 2001; 2004). Our results challenge the common wisdom that forced savings tend to reduce individuals' mental cost of self-control. In our model, individuals heterogenous in the intensity of their self-control problem and in productivity. A pension scheme simultaneously has three effects: it redistributes income across retirees, it forces young individuals to save and it affects their mental cost of exerting self-control, which is entailed by voluntary savings. In a scheme with a proportional income tax and benefits with a contributory component, taxation generally increases the mental cost of self-control. This effect partially offsets the forced-saving benefits of public pensions, and call for a more redistributive system. This result contrasts with a first best optimum, where the mental cost of self-control is driven to zero and consumption is smoothed across periods.
Subjects: 
Taxation
interwar period
Redistribution
Pensions
Self-Control
JEL: 
H55
H21
D03
Document Type: 
Working Paper

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