Forced saving, redistribution and non linear social security scheme

Helmuth Cremer (1, 2, 3, 4) , Philippe de Donder (1, 2, 3) , Dario Maldonado (5) , Pierre Pestieau (6, 7, 8, 9, 10)

1 TSE-R - Toulouse School of Economics
2 IDEI - Institut d'Economie Industrielle
3 GREMAQ - Groupe de recherche en économie mathématique et quantitative
4 IUF - Institut Universitaire de France
5 Universidad del Rosario
6 PJSE - Paris-Jourdan Sciences Economiques
7 PSE - Paris School of Economics
8 CEPR - Center for Economic Policy Research
9 CORE - Center of Operation Research and Econometrics [Louvain]
10 CREPP - Center of Research in Public Economics and Population Economics

This paper studies the design of nonlinear social security schemes when individuals differ in productivity and in their degree of myopia. Myopic individuals may not save "enough" for their retirement. The welfare function is paternalistic: The rate of time preference of the farsighted is used for both types. We show that the solution does not necessarily imply forced savings for the myopics: Paternalistic considerations are mitigated by incentive effects. Numerical results suggest that as the proportion of myopic individuals increases, there is less redistribution and more forced saving, and the desirability of social security increases.

Domains: Humanities and Social Sciences; Economics and Finance

Helmuth Cremer, Philippe de Donder, Dario Maldonado, Pierre Pestieau. Forced saving, redistribution and non linear social security scheme. Southern Economic Journal, 2009, 76 (1), pp.86-98. ⟨10.4284/sej.2009.76.1.86⟩. ⟨halshs-00754346⟩