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Abstract:In this paper we examine various aspects of the optimal lifetime redistribution policy within a cohort. We characterise optimal redistribution policy when society consists of individuals who do not differ only in productivity, but also in time preference or myopia. We extend Diamond's (2003) analysis on nonlinear taxation of savings into the three and four type models. Our results provide a rationale for distortions (upward and downward) in savings behaviour in a simple two period model where high skilled and low skilled individuals have different non-observable time preferences beyond their earning capacity. If we interpret our model so that there is no private savings, but public provision of pension in period 2, then in different versions (and different parameterization) of three type model we find the U-shaped pattern of the replacement rates. Our numerical results suggest that the retirement consumption is less dispersed than the first period consumption in a paternalistic case, whereas in a welfarist case the ordering is reversed. Our numerical simulations also show that consumption when old should be less dispersed than consumption when young when some individuals are myopic. Moreover our numerical results suggest that when there are myopic individuals in the economy, a paternalistic government policy increases saving and makes saving larger than with paternalist government policy where there are no myopic individuals.

This paper analyses the optimal tax policy and public provision of private goods when individuals differ in two respects: income-earning ability and rationality. Publicly provided goods should be overprovided or subsidised, relative to the decentralised optimum, if society's marginal valuation of them exceeds the individual valuation and if these goods help relax the self-selection constraints, formulated in a new way. Optimal marginal income tax rates are shown to differ from the standard rules if publicly provided goods and labour supply are related.JEL Code: H21, H42.

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The legitimacy of a pension system or any social security program depends on its credibility and perceived fairness. In order to gauge this legitimacy, we need to understand the relation between people's knowledge and attitudes. This experimental survey into the role of knowledge and perceptions divided respondents into two groups: the ‘treatment’ group received an information letter about a forthcoming pension reform before they were interviewed, while the control group was interviewed without receiving this ‘treatment’. Comparisons of the responses from the two groups allow us to assess how the level of knowledge and the provision of information affect people's opinions on policy reform. We also consider the patterns of covariation between background factors, people's concerns, and attitudes toward pension reform. The results show that the information letter had a significant impact on subjective but not on the objective level of knowledge. Receiving the information letter improved acceptance and perceptions of the fairness of the reform.