Working Paper: NBER ID: w15656
Authors: Louis Kaplow
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 has the same effect on labor supply as that of raising the labor income tax rate; under a second, raising the targeted savings rate has no effect on labor supply; and under a third, raising the targeted savings rate increases labor supply regardless of the slope of the labor supply curve. Effects on labor supply are particularly consequential because of the significant preexisting distortion due to labor income taxation.
Keywords: savings behavior; labor supply; neoclassical optimization; social security; retirement plans
JEL Codes: D11; D91; H24; H31; H55; J22; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher targeted savings rate (D14) | lower labor supply (J22) |
| higher targeted savings rate (D14) | no effect on labor supply (J29) |
| higher targeted savings rate (D14) | higher labor supply (J20) |