Essays on Commitment and Optimal Public Policies
Loading...
Date
2012-12-12
Authors
Garon, Jean-Denis
Keyword
Commitment , Taxation
Abstract
We focus on the design of optimal policies in the event of commitment problems.
In the first essay, we characterize how income should be redistributed within
and across generations. The time-inconsistency problem arises when the government
cannot commit to the future retirees' nonlinear tax schedule. Because retired
individuals have revealed their private information during the active period
of their lives, the government has an incentive to misuse it and to implement
more redistribution than a regular second-best policy would prescribe. We study
the set of equilibria that can be sustained if the government is infinitely lived,
and the households are short-lived.
Second, we derive an optimal linear pension scheme when individuals
need forced savings as a commitment device. We do so with
time-inconsistent preferences, whereby forced savings are the outcome of a paternalistic
social welfare maximization process. We then derive the optimal scheme when individuals
have self-control preferences.In both cases, we study the conflict between the forced-savings
and redistributive roles of public pensions. We show that the non-paternalistic pension
system may exhibit more forced savings and be less redistributive than the paternalistic one.
The third essay analyzes whether centralizing or decentralizing the provision of
public goods may influence the threats of secessions in a federation. We use a simple model
with two regions, in which one of them may decide to secede even if it would be socially
optimal, from the standpoint of the whole federation, to keep it united. Centralization
offers both benefits and costs for individual regions. We show how
centralizing generates a cost to secede if centralizing the provision of public goods requires
an investment in joint institutions that cannot be perfectly recovered if the federation is
dissolved. However, because a centralized provision of public goods does not match local preferences
as well as a decentralized one, it also generates a long-run cost to remain in the federation.