Targeted Savings and Labor Supply

15 Pages Posted: 18 Jan 2010

See all articles by Louis Kaplow

Louis Kaplow

Harvard Law School; National Bureau of Economic Research (NBER)

Date Written: January 2010

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.

Suggested Citation

Kaplow, Louis, Targeted Savings and Labor Supply (January 2010). NBER Working Paper No. w15656. Available at SSRN: https://ssrn.com/abstract=1537774

Louis Kaplow (Contact Author)

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