Date of Award

8-1-2013

Degree Type

Thesis

Degree Name

Master of Science (MS)

Department

Economics and Finance

Abstract

Using a representative-agent life-cycle model with consumer shortsightedness, I study an unfunded social security program financed via consumption taxation. Compared to financing an unfunded program with payroll taxation, I find that there is only a slight increase in well-being across planning horizons that is generated by a program with a consumption tax.

We suggest that both our data and the available time-series evidence are consistent with Milton Friedman's view that people save to smooth consumption over several years but, because of liquidity constraints, caution, or shortsighted-ness do not seek to smooth consumption over longer horizons. . . . Indeed, Milton Friedman explicitly rejected the idea that consumers had horizons as long as a lifetime in discussing the permanent income hypothesis (Carroll and Summers 1991 pp. 307, 355).

Included in

Economics Commons

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