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Optimal social security tax with myopic agents
Institution:1. Department of Economics, Tunghai University, No. 1727, Sec. 4, Xitun Dist., Taiwan Boulevard, Taichung, 40704, Taiwan;2. Department of Accounting, Feng Chia University, Taiwan;1. ESSCA School of Management, France;2. Institut Supérieur de Gestion, 2000, Le Bardo, University of Tunis, Tunisia;3. LAREQUAD FSEG de Tunis, University of Tunis El Manar, Tunisia;1. Universidad de Zaragoza, Spain;2. Banco de España, Spain;1. School of Business, East China University of Science and Technology, 130 Meilong Road, Shanghai 200237, China;2. Department of Finance, East China University of Science and Technology, Shanghai 200237, China;3. Department of Economics, University of Waterloo, 200 University Avenue West, Ontario, N2L 3G1, Canada;1. Department of Economics, 364 FCBE, University of Memphis, Memphis, TN 38152, USA;2. Department of Economics, 432 FAB, University of Memphis, Memphis, TN 38152, USA;1. Department of Logistics Management, National Kaohsiung University of Science and Technology, 1, University Rd., Yanchao Dist., Kaohsiung City 824, Taiwan;2. Department of Business Administration, Fu Jen Catholic University, Taiwan;3. Department of Risk Management and Insurance, Risk and Insurance Research Center, College of Commerce, National Chengchi University, 64, Sec. 2, Zhi-Nan Road, Wen-Shan District, Taipei 11605, Taiwan;4. Department of Leisure and Sports Management, Far East University, 49, Zhonghua Rd., Xinshi Dist., Tainan City 74448, Taiwan;1. Inter-American Development Bank (IADB), USA;2. Centro de Investigación y Docencia Económicas, CIDE, Carretera México-Toluca 3655, Col. Lomas de Santa Fe, Del. Álvaro Obregón, México D.F, C.P. 01210, Mexico
Abstract:Myopic agents lack the foresight to save for their own old age. It is generally believed that correcting myopia is a rationale for a pay-as-you-go (PAYG) pension system. This view has been supported by existing literature showing that the optimal PAYG social security tax should increase when people are more myopic. In this paper we obtain new results opposed to the traditional view. By establishing a very standard general equilibrium OLG model with myopic agents and endogenized marginal product of capital, we show that the optimal social security tax should be lower when people are more myopic. Our numerical analysis also shows that the welfare cost of the social security tax increases with people's degree of myopia. These results suggest that correcting myopia is not a clear rationale for the PAYG social security.
Keywords:PAYG pensions  Myopic behaviors  Social security tax  J26  H30  H55
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