Optimal Paternalistic Savings Policies

Abstract

We study optimal savings policies when there is a dual concern about undersaving for retirement and income inequality. Agents differ in present bias and earnings ability, both unobservable to a planner with paternalistic and redistributive motives. We characterize the solution to this two-dimensional screening problem and provide a decentralization using realistic policy instruments: mandatory savings at low incomes but a choice between subsidized savings vehicles at high incomes-resembling Social Security, 401(k), and IRA accounts in the US. Offering more savings choice at higher incomes facilitates redistribution. To solve large-scale versions of this problem numerically, we propose a general, computationally stable, and efficient active-set algorithm. Relative to the current US retirement system, we find significant welfare gains from increasing mandatory savings and limiting savings choice at low incomes.

Present bias and externalities: Can government intervention raise welfare?

“…More recently, Moser and de Souza e Silva (2019) investigate optimal retirement savings policies when there is a paternalistic motive to undo an individual's present bias combined with a redistributive motive. These authors explore the link between savings choices throughout the income distribution, identifying a trade‐off between these two motives.…”

Capital taxation with parental incentives

“…The key insight from the literature on optimal capital (saving) taxation with a paternalist social planner is that saving should be enhanced if individuals are too impatient or have a self‐control problem (Aronsson & Johansson‐Stenman, 2018; Fadlon & Laibson, 2017; Farhi & Gabaix, 2020; Moser & Olea de Souza e Silva, 2019; Pavoni & Yazici, 2017; Yazici & Pavoni, 2017). This notion implies a negative optimal tax on savings.…”

“…Although most of our analyses do not specify the sources of intergenerational time‐preference heterogeneity, a plausible interpretation is that children have present bias. In the context of capital taxation with individuals having present bias, studies found that paternalistic policymakers implement a negative marginal capital taxation that enhances savings (e.g., Bishnu & Wang, 2013; Krusell et al, 2010; Moser & Olea de Souza e Silva, 2019; Pavoni & Yazici, 2017). In other words, subsidies for savings improve social welfare by disincentivizing individuals' current consumption.…”

Pandemic lockdown: The role of government commitment

“…Since this health state is not static but evolves according to an SIRD model, the tradeoff faced by the government is not static but dynamic and the time inconsistency problem evolves over time. 7 Our analysis of rules for lockdown policy in the presence of noncontractible information relates to a growing literature on commitment versus flexibility in macroeconomics (Athey et al, 2005;Amador et al, 2006;Halac andYared, 2014, 2018;Moser and Olea de Souza e Silva, 2019).…”