Habit formation and labor supply

This paper shows that the combination of habit formation - present consumption creating additional consumption needs in the future - and myopia may explain why some retirees are forced to "unretire", i.e., unexpectedly return to work. It also shows that when myopia about habit formation le...

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Weitere Verfasser: Cremer, Helmuth (BerichterstatterIn)
Format: UnknownFormat
Sprache:eng
Veröffentlicht: Munich Univ., Center for Economic Studies u.a. 2008
Schriftenreihe:CESifo working paper series Public finance 2351
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Zusammenfassung:This paper shows that the combination of habit formation - present consumption creating additional consumption needs in the future - and myopia may explain why some retirees are forced to "unretire", i.e., unexpectedly return to work. It also shows that when myopia about habit formation leads to unretirement there is a case for government's intervention. In a first-best setting the optimal solution can be decentralized by a simple "Pigouvian" (paternalistic) consumption tax (along with suitable lump-sum taxes). In a second-best setting, when personalized lump-sum transfers are not available, consumption taxes may have conflicting paternalistic and redistributive effects. We study the design of consumption taxes in such a setting when myopic individuals differ in productivity.
Beschreibung:Literaturverz. S. 14
Beschreibung:14 S.