Targeted savings and labor supply

Substantial evidence suggests that savings behavior may depart from neoclassical optimization. This article examines the implications of raising the savings rate-whether through social security, retirement plans, or otherwise-for labor supply, where labor supply is determined by behavioral utility functions that reflect the non-neoclassical character of savings behavior. Under one formulation, raising the targeted savings rate increases labor supply regardless of the slope of the labor supply curve; under a second, raising the targeted savings rate has the same effect on labor supply as that of raising the labor income tax rate; and under a third, raising the targeted savings rate has no effect on labor supply. Effects on labor supply are particularly consequential because of the significant preexisting distortion due to labor income taxation.