NotesECN741-page26

NotesECN741-page26 - (2002)) Here, I present a 2 period...

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ECN 741: Public Economics Fall 2008 like a lump-sum tax. But since lump-tax is allowed here, it is not necessary. However, when individuals are heterogeneous in their initial wealth, then taxing wealth for redistribution is desirable. Example: Now consider the following preferences U i ( c,y ) = α log( c ) + (1 - α )log(1 - y θ i ) then h i c ( C,L ; ϕ ) = ω i C and h i y ( C,L ; ϕ ) = θ i - ω i (1 - L ) and ω i = ϕ i i π i ϕ i therefore, U m ( C,L ; φ ) = α log( C ) + (1 - α )log(1 - L ) + X i ± α log ( ω i ) + (1 - α )log ( ω i i . Also we can we can verify that W ( C,L ) = Φ W U ( α log( C ) + (1 - α )log(1 - L )) + Φ W U L (1 - α ) 1 - L and therefore τ * ( L ) = 1 (1 - L W U / Φ W U L + 1 also κ ( s t ) = 0 for all t 1 2.3 Taxing Capital in Life Cycle Economies (Erosa and Gervais
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Unformatted text preview: (2002)) Here, I present a 2 period version of Erosa and Gervais ( 2002 ). Individuals live 2 periods (born at age , die at age 1 ). Each generation is indexed by its date of birth. For example in period t , the generations alive are t-1 ,t . Assume no population growth. Each individual is endowed with one unit of time at each age j and can transform one unit of time into z j unit of ecient labor. Let c t,j be the consumption of generation t at age j . Other variables follow the same notation. 26...
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