NotesECN741-page29 - ECN 741 Public Economics Fall 2008...

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ECN 741: Public Economics Fall 2008 U c 0 + λ ( U c 0 + U cc 0 c 0 + U lc 0 l 0 ) βU c 1 + λ ( U c 1 + U cc 1 c 1 + U lc 1 l 1 ) = β (1 - δ + f kt +1 ) Note that this in general does not imply zero tax on capital. When profile of labor produc- tivity, z j , is not flat over lifetime, in general consumption and leisure allocations over lifetime is not flat. Question: Intuitively, why is it optimal to distort inter-temporal decision in this environ- ment? We can impose assumptions on preferences (both for government and individuals) to arrive at zero capital taxation result again. Proposition 8 Suppose period utility function is of the following form u ( c,l ) = c
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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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