Institute of Economics, Research Centre for Economic and Regional Studies, Hungarian Academy of Sciences
Abstract
A general framework is analyzed which contains several special transfer (tax and pension) models. In our static two-overlapping-generation framework, every individual works in the first stage of the adult age, while is retired in the second. The government operates a balanced linear transfer system, sometimes with caps. In the models, the individuals may optimize their situation in various ways: contributing to voluntary pension, restraining labor supply and underreporting wages. Individuals are typically short-sighted, therefore they choose paternalistically suboptimal decisions. The models provide useful information on the socially optimal paternalistic transfer system
