Short horizons, time inconsistency, and optimal social security

T. Scott Findley () and Frank Caliendo

International Tax and Public Finance, 2009, vol. 16, issue 4, 487-513

Abstract: We study the optimal provision of social security in a dynamically efficient economy using a continuous-time overlapping-generations model in which consumers have short planning horizons. The short-horizon mechanism leads to dynamic optimization that is time-inconsistent over the life cycle. Our calibrated general-equilibrium results are generally supportive of social security for a wide array of social welfare functions. Thus, the basic life-cycle model can be augmented with only this slight twist in order to rationalize a social security program with the current U.S. tax rate. Copyright Springer Science+Business Media, LLC 2009

Keywords: Short planning horizons; Time-inconsistent preferences; Social security; Optimal taxation; Dynamic optimization; Life-cycle consumption; Dynamic welfare analysis; H55; D91; C61 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (37)

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DOI: 10.1007/s10797-009-9115-2

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