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Myopia and the Effects of Social Security and Capital Taxation on Labor Supply

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  • Louis Kaplow

Abstract

This article analyzes the effect of savings-related policies on labor supply in a model that explicitly incorporates myopic decision-making. Both social security and capital taxation may cause labor supply to rise or fall when individuals are myopic, depending on the curvature of individuals’ utility as a function of consumption. Moreover, whatever is the sign of these effects under one assumption about how myopia relates to labor supply decisions, the sign is reversed under the other assumption that is considered. Additionally, some interventions have a first-order effect on labor supply from the outset but others do not, and some labor supply effects rise with the magnitude of the intervention whereas others fall.

Suggested Citation

  • Louis Kaplow, 2015. "Myopia and the Effects of Social Security and Capital Taxation on Labor Supply," National Tax Journal, National Tax Association;National Tax Journal, vol. 68(1), pages 7-32, March.
    • Handle: RePEc:ntj:journl:v:68:y:2015:i:1:p:7-32
    DOI: 10.17310/ntj.2015.1.01
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    Cited by:

    1. Louis Kaplow, 2014. "Government Policy and Labor Supply with Myopic or Targeted Savings Decisions," NBER Chapters, in: Tax Policy and the Economy, Volume 29, pages 159-193, National Bureau of Economic Research, Inc.
    2. Torben M. Andersen, 2023. "Pensions and the Nordic Welfare Model," CESifo Working Paper Series 10321, CESifo.
    3. Louis Kaplow, 2020. "A Unified Perspective on Efficiency, Redistribution, and Public Policy," NBER Working Papers 26683, National Bureau of Economic Research, Inc.
    4. MOUNA BEN OTHMAN & Mohamed Ali MAROUANI, 2016. "Labor Market Effects of Pension Reform :an overlapping genenrations general equilibrium model applied to Tunisia," EcoMod2016 9294, EcoMod.
    5. Amol Amol & Monisankar Bishnu & Tridip Ray, 2023. "Pension, possible phaseout, and endogenous fertility in general equilibrium," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(2), pages 376-406, April.
    6. Gahvari, Firouz & Beach, Randy, 2016. "On the optimal linkage of social security benefits to payroll taxes," Research in Economics, Elsevier, vol. 70(1), pages 110-121.
    7. Kshama Dwarakanath & Jialin Dong & Svitlana Vyetrenko, 2024. "Tax Credits and Household Behavior: The Roles of Myopic Decision-Making and Liquidity in a Simulated Economy," Papers 2408.10391, arXiv.org, revised Oct 2024.

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