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State Verification and the Incentives to Save

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  • Thomas Mertens

    (Harvard University)

  • Roc Armenter

    (Federal Reserve Bank of Philadelphia)

Abstract

We consider a simple state verification technology in a dynamic private information economy. We find that the marginal benefit may be below the marginal cost of investment under the constrained efficient allocation. In particular, if the planner can verify a the type of a sufficiently large fraction of agents, then savings should be either subsidized or not taxed. In contrast, the prescriptions with respect to the labor supply are unchanged with the state verification technology.

Suggested Citation

  • Thomas Mertens & Roc Armenter, 2009. "State Verification and the Incentives to Save," 2009 Meeting Papers 289, Society for Economic Dynamics.
    • Handle: RePEc:red:sed009:289
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    References listed on IDEAS

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