Reference no: EM131236547
In this problem you will analyse how optimal household's choices react in response to a change in the timing of distortionary taxes.
Consider the two-period model of the household. Suppose that the consumer has current income of y, future income of y`, and faces proportional taxes on consumption in both the current and future period. That is, if consumption is c in the current period and c` in the future period, then the consumer pays a tax tcC in the current period and t`cC in the future period. There are no lump-sum taxes. The government wishes to collect total tax revenue in the current and future periods which has a present value of G in order to nance its government purchases. Now, suppose that the government reduces tc and increases t`c in such a way that it continues to collect the same present value of tax revenue G from the consumer, given the consumer's optimal choices of current and future period consumption.
1. Write down the lifetime budget constraint of the consumer before the tax change.
Hint: As we did in class, start by writing down two budget constraints, one for the current period and one for the future period, that depend on the consumer's consumption, income, and savings.
2. Suppose that the government cuts tc and increases t`c while keeping the present value of tax collections xed. Explain whether the lifetime wealth of the consumer (i.e., we using the notation in class) is a ected by this policy change.
3. Using a graph, plot the lifetime budget constraint of the consumer before and after the change in proportional taxes. Does the slope of the lifetime budget constraint change?
4. Based on your answer to part (c), does Ricardian equivalence hold in this example? Use a diagram to illustrate your response. Explain whether the timing of proportional taxes matters in a way that the timing of lump-sum taxes does not and, if so, why.
In two-period life cycle model
: In a two-period life cycle model, the equilibrium condition is that the marginal rate of substitution of future consumption for current consumption equals one plus the interest rate. Explain what would happen if the MRS exceeds one plus the interest ..
|
What is the monthly rate they charge
: A used car parking lot has the following deal on a $23,000 car. Zero down and $385 monthly payements for 70 months. What is the monthly rate they charge? Draw a cash flow diagram
|
Sporting events through the supply and demand model
: Examine the market for tickets for popular sporting events through the supply and demand model. Consider the following questions: How often are you able to buy a popular event ticket (for example, the Super Bowl) at face value? Consider the prices yo..
|
Identify the various actors of intergovernmental relations
: Identify the various actors of intergovernmental relations involved in the case. In general, what does this case tell you about the complexity of IGR in this country and the work of public administrators in the 21st century?
|
Consider the two-period model of the household
: In this problem you will analyse how optimal household's choices react in response to a change in the timing of distortionary taxes. Consider the two-period model of the household. Suppose that the consumer has current income of y, future income of y..
|
About vietnam economic outlook
: About Vietnam's economic outlook (Please answer these question) In what way does the political environment in Vietnam pose both an opportunity and a threat for American MNCs seeking to do business there?
|
Aggregate output-consumption-employment and the real wage
: Suppose that the government decides to increase G. Using a diagram, determine the equilibrium e ects of this shock on aggregate output, consumption, employment, and the real wage. Show that increasing G can potentially increase welfare. Compare your ..
|
Find the limit output for fixed costs equal
: Find the limit output for fixed costs ( f ) equal to 50, 32, 18, and 2. What is the SPNE for the entry game with the following timing: in the first-stage firm 1 can commit to its output; in the second stage firm 2 can enter and choose its output for ..
|
What is the minimum capacity of an s-t cut
: List all the minimum s-t cuts in the flow network pictured in Fig- ure 7.24. The capacity of each edge appears as a label next to the edge - What is the minimum capacity of an s-t cut in the flow network in Figure 7.25? Again, the capacity of each ..
|