1. Short horizons, time inconsistency, and optimal social security.
- Author
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Findley, T. Scott and Caliendo, Frank N.
- Subjects
OLD age assistance ,SOCIAL security ,INCOME maintenance programs ,ECONOMIC security ,SOCIAL security taxes - 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. [ABSTRACT FROM AUTHOR]
- Published
- 2009
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