Optimal decisions on pension plans in the presence of financial literacy costs and income inequalities

Pension reforms are on the political agenda of many countries. Such reforms imply an increasing responsibility on individuals’ side in building an efficient portfolio for retirement. In this paper we provide a model describing workers’ choices on the allocation of retirement savings in presence of a) mandatory contribution; b) portfolio decision; c) financial literacy costs. In particular, we characterise the results both from a positive and normative standpoint, by highlighting the determinants of the individual’s choice, with special focus on financial literacy costs and wage level inequalities and by characterizing the optimal contribution rate to mandatory complementary pension schemes.Financial literacy; Choice on pension Plans; Optimal portfolio composition; Income inequality.

Social Security Incentives For Retirement In Italy

The present work is the first of a two-paper project aiming at bringing a new empirical contribution to literature on retirement, with particular focus on Italy. In this paper I carry out an analysis of Social Security-provided incentives for early retirement and of the main changes brought about by the two major early 90s reforms. For this purpose I use a sample of male employees drawn from the Bank of Italy Survey on Wealth and Income of Italian Households (SHIW) and I calculate both “static” and “dynamic” SS incentive measures: as for the latter, I discriminate between “one year” and “lifetime” measures of the accumulation opportunities of SS entitlements and suggest new measures to account for the trade-off comprised in the decision of retirement. The analysis documents strong early retirement incentives for Public Sector employees and relevant binding eligibility constraints for Private Sector workers. In general prosecution of work beyond age 60 has been dramatically discouraged due to the actuarial unfairness of pension formula. As for the effects of the SS reforms, it emerges that the early 1990s changes will produce a strong cut of benefits in the long run, while for current employees the most important changes have been the reduction of benefit indexation, the temporary restrictions and actuarial penalizations on seniority retirement. It turns out that especially Public Sector employees and younger cohorts undergo the strongest benefit cuts. All in all, to the extent to which such benefit cuts have been perceived by individuals, one would expect reforms to have induced anticipated exits from labor force among older cohorts

An Assessment of the Italian 2007 Second Pillar Reform: a simulation approach

In this paper we aim at assessing the outcomes of the 2007 Italian reform of the complementary social security and to identify the determinants behind them. The reform gave relevant incentives to workers to switch from investing about 7% of their gross wages into a compulsory defned benefit scheme inside the firm (which took the form of a termination indemnity payment, the TFR scheme) to an external pension fund. We provide a theoretical framework to model workers' choice problem of switching between these pension schemes and we then perform an agent-based simulation taking into account all the details of the reform. Our simulations are able to replicate the Italian data in term of adhesion rates to complementary social security and also to identify some of the key determinants of that outcome, like the fiscal incentives, the financial literacy and the expectations on the rate of returns of pension funds.Agent Based Simulation, Pension Schemes, Second Pillar

Savings for retirement under liquidity constraints: A note

Pension systems often entail some compulsory saving over which individuals have some degree of choice in terms of the pension plan in which to invest. We analyse whether the choice between alternative plans is affected by the presence of liquidity constraints during working life and we prove that the analytical conditions that determine the choice between different plans are the same in the constrained and unconstrained case

Endogenous Financial Literacy, Saving, and Stock Market Participation

Recent empirical literature provides evidence that financial literacy, human capital, education, saving, and stock market participation are interconnected decisions. However, a consolidated theoretical explanation of such connections is missing. We contribute to this topic by building a framework that includes all these decisions in an encompassing model. We build a two-period model in which individuals acquire education, work, and save for retirement; financial literacy reduces the costs of managing risky assets available on the stock market. Our results, besides providing a theoretical foundation for the role and the determinants of the above-mentioned decisions, can also explain several stylized facts on literacy, human capital, and stock market participation

Optimal taxation, critical-level utilitarianism and economic growth

In this work we analyze the issue of taxation in an intertemporal economywith endogenous fertility under critical-level utilitarianism, both from apositive and normative standpoint. On the positive side we analyse theeffects of a change in the tax on capital income and on the population size,both separately and in a policy aiming at maintaining per-capita debtconstant. On the normative side, we characterize the first-best and second-best optimal tax structures both when labour supply is exogenous andendogenous

Optimal Decisions on Pension Plans in the Presence of Information Costs and Financial Literacy

Pension reforms are on the political agenda of many countries. Such reforms imply an increasing responsibility on individuals’ side in building an efficient portfolio for retirement. In this paper, we provide a model describing workers’ choices on the allocation of retirement savings in presence of (1) mandatory pension contribution; (2) different pension plans; and (3) information costs and financial literacy investment decisions. In particular, we characterize the results from both a positive and normative standpoint, by highlighting the determinants of individuals’ choice, with special focus on information costs, on the role of income and preferences, and by characterizing the optimal contribution rate to mandatory complementary pension plans. We also introduce endogenous financial literacy and analyze how its optimal level is determined and how it affects the decisions on pension plans

Emotion Recognition in the Wild using Deep Neural Networks and Bayesian Classifiers

Group emotion recognition in the wild is a challenging problem, due to the unstructured environments in which everyday life pictures are taken. Some of the obstacles for an effective classification are occlusions, variable lighting conditions, and image quality. In this work we present a solution based on a novel combination of deep neural networks and Bayesian classifiers. The neural network works on a bottom-up approach, analyzing emotions expressed by isolated faces. The Bayesian classifier estimates a global emotion integrating top-down features obtained through a scene descriptor. In order to validate the system we tested the framework on the dataset released for the Emotion Recognition in the Wild Challenge 2017. Our method achieved an accuracy of 64.68% on the test set, significantly outperforming the 53.62% competition baseline.Comment: accepted by the Fifth Emotion Recognition in the Wild (EmotiW) Challenge 201

Social discounting, migration and optimal taxation of savings

We study the problem of optimal inheritance and capital income taxation in an economy with migration. We find that, contrary to previous studies on OLG models, even if the utility function is assumed to be homothetic and separable in consumption and leisure, a non-zero tax result emerges whenever the policy maker attaches weights to the individual utility functions in the social welfare function that are allowed to vary through time, for example, according to the demographic dynamics of the economy. We also perform a welfare analysis of the choice among different social weights: the results depend on several factors, among which the extent of the distortions induced by the tax instruments vis-a`-vis the suboptimality of the market allocation in an OLG economy, deriving from the disconnection among generations