International Tax and Public Finance

, Volume 18, Issue 5, pp 507–518 | Cite as

Targeted savings and labor supply

Article

Abstract

Substantial evidence suggests that savings behavior may depart from neoclassical optimization. This article examines the implications of raising the savings rate—whether through social security, retirement plans, or otherwise—for labor supply, where labor supply is determined by behavioral utility functions that reflect the non-neoclassical character of savings behavior. Under one formulation, raising the targeted savings rate increases labor supply regardless of the slope of the labor supply curve; under a second, raising the targeted savings rate has the same effect on labor supply as that of raising the labor income tax rate; and under a third, raising the targeted savings rate has no effect on labor supply. Effects on labor supply are particularly consequential because of the significant preexisting distortion due to labor income taxation.

Keywords

Behavioral public finance Income taxation Labor supply Non-neoclassical behavior Retirement plans Satisficing Savings Social security 

JEL Classification

D11 D91 H24 H31 H55 J22 J26 

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Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  1. 1.Harvard UniversityCambridgeUSA

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