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Myopia and pensions in general equilibrium

Caliendo, Frank N. and Gahramanov, Emin 2013, Myopia and pensions in general equilibrium, Journal of economics and finance, vol. 37, no. 3, pp. 375-401, doi: 10.1007/s12197-011-9187-6.

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Title Myopia and pensions in general equilibrium
Author(s) Caliendo, Frank N.
Gahramanov, Emin
Journal name Journal of economics and finance
Volume number 37
Issue number 3
Start page 375
End page 401
Total pages 27
Publisher Springer Science & Business Media
Place of publication Memphis, Tenn.
Publication date 2013
ISSN 1055-0925
1938-9744
Keyword(s) myopia
public pensions
retirement
delayed claiming
general equilibrium
Summary The US social security tax rate has doubled in the last half century.

Does the degree of myopic behavior that we observe in the US justify the size of the social security program? To study this question we build a computable general equilibrium model that is composed of life-cycle permanent-income consumers who save optimally and “hand-to-mouth” consumers who just consume their disposable income. Our model is a continuous-time, general equilibrium extension of the model by Cremer et al. (Int Tax Public Financ 15(5):547–562, 2008), though we abstract from the redistributive function of social security to focus on myopia. Retirement is a choice variable in our model and the social security program is designed to mimic the US program in which the annuity value of benefits increases with the retirement age. Also, we allow for delayed claiming beyond the date of retirement. The model matches a variety of important data targets relating to saving and retirement. We find that small reductions in the social security tax rate provide significant welfare gains to both groups of consumers.
Language eng
DOI 10.1007/s12197-011-9187-6
Field of Research 140212 Macroeconomics (incl Monetary and Fiscal Theory)
Socio Economic Objective 910105 Fiscal Policy
HERDC Research category C1 Refereed article in a scholarly journal
Copyright notice ©2013, Springer
Persistent URL http://hdl.handle.net/10536/DRO/DU:30054871

Document type: Journal Article
Collection: School of Accounting, Economics and Finance
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