Nonseparable Preferences and Optimal Social Security Systems / Borys Grochulski, Narayana Kocherlakota.

Format:

Book

Author/Creator:

Grochulski, Borys.

Contributor:

National Bureau of Economic Research.

Kocherlakota, Narayana.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13362.

NBER working paper series no. w13362

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2007.

Summary:

In this paper, we consider economies in which agents are privately informed about their skills, which are evolving stochastically over time. We require agents' preferences to be weakly separable between the lifetime paths of consumption and labor. However, we allow for intertemporal nonseparabilities in preferences like habit formation. We show that such nonseparabilities imply that optimal asset income taxes are necessarily retrospective in nature. We show that under weak conditions, it is possible to implement a socially optimal allocation using a social security system in which taxes on wealth are linear, and taxes/transfers are history-dependent only at retirement. The average asset income tax in this system is zero.

Notes:

Print version record

September 2007.