Short horizons, time inconsistency, and optimal social security |
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Authors: | T Scott Findley Frank N Caliendo |
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Institution: | (1) Department of Economics, University of New Mexico, Albuquerque, NM, USA;(2) Department of Economics and Finance, Utah State University, Logan, UT, USA |
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Abstract: | We study the optimal provision of social security in a dynamically efficient economy using a continuous-time overlapping-generations
model in which consumers have short planning horizons. The short-horizon mechanism leads to dynamic optimization that is time-inconsistent
over the life cycle. Our calibrated general-equilibrium results are generally supportive of social security for a wide array
of social welfare functions. Thus, the basic life-cycle model can be augmented with only this slight twist in order to rationalize
a social security program with the current U.S. tax rate. |
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Keywords: | |
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