Nonseparable Preferences and Optimal Social Security systems

Narayana Kocherlakota and Borys Grochulski

No 2007-1, Working Papers from University of Minnesota, Department of Economics

Abstract: In this paper, we consider economies in which agents are privately informed about their skills, which are evolving stochastically over time. We require agents’ preferences to be weakly separable between the lifetime paths of consumption and labor. However, we allow for intertemporal nonseparabilities in preferences like habit formation. We show that such nonseparabilities imply that optimal asset income taxes are necessarily retrospective in nature. We show that under weak conditions, it is possible to implement a socially optimal allocation using a social security system in which taxes on wealth are linear, and taxes/transfers are history-dependent only at retirement. The average asset income tax in this system is zero.

Keywords: Nonseparable Preferences; Social Security (search for similar items in EconPapers)
JEL-codes: E62 H21 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2007-08-14, Revised 2007-08-14
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Nonseparable preferences and optimal social security systems (2010)
Working Paper: Nonseparable Preferences and Optimal Social Security Systems (2008)
Working Paper: Nonseparable Preferences and Optimal Social Security Systems (2007)
Working Paper: Nonseparable Preferences and Optimal Social Security Systems (2007)
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