Abstract We derive optimal characteristics of contribution rates into defined contribution pension plans based on consumption-savings theory. Contribution rates should increase with age and decrease with the balance-to-income ratio. Using Swedish registry data, we show that on average, individuals save according to those principles. However, almost half of the population behaves hand-to-mouth and does not undo the mandated constant contribution rates. In a quantitative model, designing contribution rates to follow the principles implies a 1.8% welfare gain and less dispersed replacement rates, while maintaining the same average replacement rate. Results are robust to various sources of model misspecification, including temptation preferences.

Abstract We examine the mechanisms driving the aggregate and distributional impacts of Universal Basic Income (UBI) through model analysis of various UBI programs and financing schemes. The main adverse effect is the distortionary tax increase to fund UBI, reducing labor force participation. Secondary channels are a decline in demand for self-insurance, depressing aggregate capital, and a positive income effect that further deters labor force participation. Due to these channels, introducing UBI alongside existing social programs reduces output and average welfare. Partially substituting existing programs with UBI mitigates the adverse effects, increases average welfare, but does not deliver a Pareto improvement.

ABSTRACT We characterize the optimal default fund in a defined contribution (DC) pension plan. Using detailed data on individuals' holdings inside and outside the pension system, we find substantial heterogeneity within and between passive and active investors in terms of labor income, financial wealth, and stock market participation. We build a life‐cycle consumption‐savings model, with a DC pension account and an opt‐out/default choice, that produces realistic investor heterogeneity. Relative to a common age‐based allocation, implementing the optimal default asset allocation implies a welfare gain of 1.5% during retirement. Much of the gain is attainable with a simple rule of thumb.