Optimal Paternalistic Savings Policies

Abstract

We study optimal savings policies when there is a dual concern about under-saving for retirement and income inequality. Agents differ in time preferences 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: forced savings at low incomes-similar to Social Security-but a choice between savings accounts with different subsidies and caps at high incomes-like 401(k) and IRA accounts in the US. Offering more choice in savings at higher incomes facilitates redistribution. Relative to the current US retirement system, we find large welfare gains from increasing mandatory savings and limiting savings choice at low incomes.

Optimal Illiquidity

“…In the actual data on U.S. households, consumption proxies appear to decline between working life and retirement, 17 raising the normative possibility that mandatory savings might be underutilized in the U.S. 18 However, there is an active debate about both the existence and normative interpretation of the observed distribution of consumption changes for households transitioning from work life into retirement. 19 Our normative result on underutilization of mandatory savings is closely related to a similar result reported in Moser and Olea de Souza e Silva (2017). Though many elements of the two models differ, both models assume that agents are present biased, and they both imply that optimal savings mechanisms are characterized by more mandatory savings than currently exists in the U.S. system.…”

“…Our model is an aggregate version (which adds interpersonal transfers) of the flexibility/commitment framework of Amador, Werning, and Angeletos (2006; hereafter referred to as AWA). Our model is very closely related to the model of Moser and Olea de Souza e Silva (2017), who also generalize AWA by allowing for mechanisms with inter-household transfers. In their model, households have unobservable earnings ability and unobservable , whereas we study the case of unobservable taste shocks (with exogenous earnings) and unobservable .…”

Determinants of early-access to retirement savings: Lessons from the COVID-19 pandemic

“…Australian Bureau of Statistics (ABS)., 2020 , Australian Bureau of Statistics (ABS)., 2021 , Australian Prudential Regulation Authority (APRA), 2021a , Australian Prudential Regulation Authority (APRA), 2021b , Australian Prudential Regulation Authority (APRA)., 2022 , Beshears et al, 2020 , Deetlefs et al, 2019 , Frydenberg, 2020a , Frydenberg, 2020b , Frydenberg, 2020c , Kahneman and Tversky, 1984 , López and Rosas, 2022 , Moser et al, 2019 , Thaler, 1980 , The Australian Government the Treasury (Treasury)., 2021 .…”

How Should Capital Be Taxed?

“…These difficult questions have attracted some attention in the recent literature. For example, the treatment of pension savings in the tax system when individuals are subjective to self‐control problems or cognitive biases, and the appropriate role of the government to deal with such issues, is analyzed by Moser and Silva (2019) and Hosseini and Shourideh (2019).…”