Econ402_Set4 - PS 4 Labor Supply, the Real Intertemporal...

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PS 4 – Labor Supply, the Real Intertemporal Model and Taxes (60 raw points) ECON 402, Prof. Bachmann Due: February 10 Explain all your answers. “Results only” means partial credit only. Staple and write legibly. No spiral stuff. Write on the top of the front page of the assignment you hand in: name, section number, section time and section GSI. The numbers in brackets are the subdivision of raw points for each question. I) Labor Supply (20 raw points) The Nobel Prize winning economist, Ed Prescott, published in 2004 (in the Minneapolis Federal Reserve Bank Quarterly Review , 28(1), pp. 2-13) the following table: Period Country Labor Supply Tax rates 1993-1996 Germany 19.3 0.59 France 17.5 0.59 Italy 16.5 0.64 USA 25.9 0.40 Labor supply is measured in weekly hours worked per prime aged person. Also, notice that tax rates are not lump sum taxes, but rather (more realistic) income tax rates, so that for every unit of the real wage, w , the households on net get only (1- τ )w in their pocket. 1)
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Econ402_Set4 - PS 4 Labor Supply, the Real Intertemporal...

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