Public Pensions in a Multi-Period Mirrleesian Income Tax Model

Using an OLG model with skill uncertainty and private savings, we investigate whether an optimally designed set of public pension transfers can usefully supplement a nonlinear labor income tax as a welfare-enhancing policy instrument. We consider a Mirrleesian setting where agents' skills are private information and highlight that, even though pensions, by crowding out private savings, adversely affect the achievement of the golden-rule, they can be used as a mimicking-deterring device that makes it easier for the government to achieve the desired redistributive goals.