Optimal Paternalistic Savings Policies
Christian Moser () and
Pedro Olea de Souza e Silva
Additional contact information
Pedro Olea de Souza e Silva: Uber Technologies
No 17, Working Papers from Federal Reserve Bank of Minneapolis, Opportunity and Inclusive Growth Institute
We study optimal savings policies when there is a dual concern about undersaving for retirement and income inequality. Agents differ in present bias and earnings ability, both unobservable to a planner with paternalistic and redistributive motives. We characterize the solution to this two-dimensional screening problem and provide a decentralization using realistic policy instruments: mandatory savings at low incomes but a choice between subsidized savings vehicles at high incomes—resembling Social Security, 401(k), and IRA accounts in the US. Offering more savings choice at higher incomes facilitates redistribution. To solve large-scale versions of this problem numerically, we propose a general, computationally stable, and efficient active-set algorithm. Relative to the current US retirement system, we find significant welfare gains from increasing mandatory savings and limiting savings choice at low incomes.
Keywords: Optimal taxation; Multidimensional screening; Present bias; Preference heterogeneity; Paternalism; Retirement; Savings; Social Security; Active-set algorithm (search for similar items in EconPapers)
JEL-codes: E62 H21 H55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-cmp, nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed
Downloads: (external link)
https://www.minneapolisfed.org/institute/working-papers-institute/iwp17.pdf Full text (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmoi:0017
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Working Papers from Federal Reserve Bank of Minneapolis, Opportunity and Inclusive Growth Institute Contact information at EDIRC.
Bibliographic data for series maintained by Jannelle Ruswick ().