Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Minneapolis, Opportunity and Inclusive Growth Institute
Working Papers
Optimal Paternalistic Savings Policies
Christian Moser
Pedro Olea de Souza e Silva

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.

Download Full text
Cite this item
Christian Moser & Pedro Olea de Souza e Silva, Optimal Paternalistic Savings Policies, Federal Reserve Bank of Minneapolis, Opportunity and Inclusive Growth Institute, Working Papers 17, 10 Jan 2019.
More from this series
JEL Classification:
Subject headings:
Keywords: Optimal taxation; Multidimensional screening; Present bias; Preference heterogeneity; Paternalism; Retirement; Savings; Social Security; Active-set algorithm
DOI: 10.21034/iwp.17
For corrections, contact Jannelle Ruswick ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal