NotesECN741-page3 - x i-l F x 1,x n,l = 0 Government has to...

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ECN 741: Public Economics Fall 2008 1 Ramsey Taxation - Primal Approach Consider an economy with n types of consumption good that are produced using labor input: F ( c 1 + g 1 ,...,c n + g n ,l ) = 0 (1) c i is private and g i is public consumption of good i and l is the labor input. F is a constant return to scale technology. Consumers face the following maximization problem max c 1 ,...,c n ,l U ( c 1 ,...,c n ,l ) subject to n X i =1 p i (1 + τ i ) c i = l in which τ i is the taxed levied on consumption of good i (wage is normalized to 1). There is a representative firm that produces goods using technology F : max x 1 ,...,x n ,l n X i =1 p i
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Unformatted text preview: x i-l F ( x 1 ,...,x n ,l ) = 0 Government has to finance its purchase g = ( g 1 ,...,g n ) using linear taxes τ i n X i =1 p i g i = n X i =1 p i τ i c i (2) Let’s take government purchase as given. A Competitive Equilibrium is • Consumers and producers allocations: ( c,x,l ) • prices: p = ( p 1 ,...,p n ) • policy: π = ( τ 1 ,...,τ n ) such that 1. Given policy π and prices p , ( c,l ) solve consumers problem. 2. Given prices, p , ( x,l ) solves producers problem. 3...
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This note was uploaded on 12/10/2011 for the course MAT 121 taught by Professor Wong during the Fall '10 term at SUNY Stony Brook.

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