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Unformatted text preview: c * t ,l * t and k * t +1 uniquely identies a sequence of b t that is a part of competitive equilibrium. Candidate wage and rate of return on capital is given by ( 15 ). Therefore, from the FOC ( 9 )-( 12 ) we have 1- lt 1 + ct =-U * lt F * lt U * ct (1 + xt ) U * ct 1 + ct = U * ct +1 1 + ct +1 (1- xt +1 )(1- ) + (1- kt +1 ) F * kt +1 (20) U * ct 1 + ct = U * ct +1 1 + ct +1 R bt +1 any two of the four taxes can be chosen such that the above conditions hold. 2.1 Ramsey problem The Ramsey problem is the following max c t ,k t +1 ,l t X t =0 t U ( c t ,l t ) 14...
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- Fall '10