Self-Control preferences and public pension analysis

Abstract

We study the macroeconomic and fiscal effects of self-control preferences on household saving, labor supply, and public pension design. Building on the framework of Gul and Pesendorfer, we develop a quantitative general equilibrium overlapping generations model in which agents face temptations over both consumption and leisure. We use this model to analyze how varying degrees of self-control costs interact with key pension parameters: the taper rate (means testing), the maximum pension benefit, and the eligibility age. We find that stronger self-control preferences increase reliance on public pensions, amplifying fiscal pressure and altering labor supply patterns, particularly among older workers. Means testing can partially mitigate these effects by encouraging private saving and later retirement but involves trade-offs in taxation and welfare. By incorporating self-control preferences into a macroeconomic framework, we highlight how behavioral biases can influence the performance and fiscal impact of alternative pension policies.