|Title||Optimal Paternalistic Savings Policies|
|Publication Type||Journal Article|
|Year of Publication||2019|
|Authors||Moser, C, Silva, POlea de So|
|Journal||SSRN Electronic Journal|
|Keywords||Economic behaviors, Fathers, Paternal support, Policy, policy effects, Saving|
We study optimal savings policies when there is a dual concern about undersaving for retirement and income inequality. Agents differ in present bias and earnings ability, both unobservable to a planner with paternalistic and redistributive motives. We characterize the solution to this two-dimensional screening problem and provide a decentralization using realistic policy instruments: mandatory savings at low incomes but a choice between subsidized savings vehicles at high incomes–resembling Social Security, 401(k) and IRA accounts in the US. Offering more savings choice at higher incomes facilitates redistribution. To solve large-scale versions of this problem numerically, we propose a general, computationally stable, and efficient active-set algorithm. Relative to the current US retirement system, we find significant welfare gains from increasing mandatory savings and limiting savings choice at low incomes.