Targeted savings and labor supply |
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Authors: | Louis Kaplow |
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Institution: | 1.Harvard University,Cambridge,USA |
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Abstract: | Substantial evidence suggests that savings behavior may depart from neoclassical optimization. This article examines the implications
of raising the savings rate—whether through social security, retirement plans, or otherwise—for labor supply, where labor
supply is determined by behavioral utility functions that reflect the non-neoclassical character of savings behavior. Under
one formulation, raising the targeted savings rate increases labor supply regardless of the slope of the labor supply curve;
under a second, raising the targeted savings rate has the same effect on labor supply as that of raising the labor income
tax rate; and under a third, raising the targeted savings rate has no effect on labor supply. Effects on labor supply are
particularly consequential because of the significant preexisting distortion due to labor income taxation. |
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Keywords: | |
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