Age-independent subsidy nudges under self-control problems

Abstract

This paper analyzes paternalistic capital subsidy policies to tackle the undersaving issue among present-biased consumers with varying levels of naivete. We demonstrate that age-independent subsidy policies achieve optimal savings for sophisticated consumers but only secondary outcomes for naive ones. As naivete intensifies, lower capital subsidy rates are required, despite naive consumers' higher undersaving tendencies in the absence of policy interventions. Increasing the capital subsidy rate for naive consumers can correct short-term present bias but distorts long-term savings, as they misinterpret such policy nudges as unnecessary in the future due to ignorance of future present bias.