Are incentivized old-age savings schemes effective under incomplete rationality?

Konferenzbeitrag

Financing consumption of the elderly in the face of the projected increase in life expectancy is a key challenge for economic policy. Moreover, standard structural models with fully rational agents suggest that about 50-60 percent of old-age consumption is financed with voluntary savings, even in the presence of a fairly generous public pension system. This is clearly inconsistent with either the data, or the alarming simulations of old-age poverty in the years to come. Oldage saving (OAS) schemes are widely used policy instruments to address this challenge, but structural evaluations of such instruments remain rare. We develop a framework with incompletely rational agents: lacking financial literacy and experiencing commitment difficulties. We study a broad selection of OAS schemes and find that they raise welfare of financially illiterate agents and to a lesser extent improve welfare of agents with a high degree of time inconsistency. They also reduce the incidence of poverty at old age. Unfortunately, these instruments are fiscally costly, induce considerable crowd-out and direct fiscal transfers mostly to those agents, who need it the least.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2020: Gender Economics

Classification and Topics

• Classification: Wirtschaft ; Fiscal Policies and Behavior of Economic Agents: Household ; Social Security and Public Pensions ; Welfare, Well-Being, and Poverty: Government Programs; Provision and Effects of Welfare Programs
• Subject: old-age savings ; incomplete rationality ; welfare effects

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Tyrowicz, Joanna
• Event: Veröffentlichung
• (who): ZBW - Leibniz Information Centre for Economics
• (where): Kiel, Hamburg
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/224526
• Last update: 10.03.2025, 11:44 AM CET