NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Targeted Savings and Labor Supply

Louis Kaplow

NBER Working Paper No. 15656
Issued in January 2010
NBER Program(s):   LS   PE

Substantial evidence suggests that savings behavior may depart from neoclassical optimization. This article examines the implications of raising the savings rate – whether through social security, retirement plans, or otherwise – for labor supply, where labor supply is determined by behavioral utility functions that reflect the non-neoclassical character of savings behavior. Under one formulation, raising the targeted savings rate has the same effect on labor supply as that of raising the labor income tax rate; under a second, raising the targeted savings rate has no effect on labor supply; and under a third, raising the targeted savings rate increases labor supply regardless of the slope of the labor supply curve. Effects on labor supply are particularly consequential because of the significant preexisting distortion due to labor income taxation.

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Document Object Identifier (DOI): 10.3386/w15656

Published: Targeted Savings and Labor Supply, International Tax and Public Finance , vol. 18, pp. 507-518 (2011).

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