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Unformatted text preview: ( θ t +1 ))(1δ + F K ( K * t +1 ,Y * t )) ² ² θ t +1 µ . In other words there is an intertemporal wedge 1τ t = u ( c * t ( θ t )) β E ´ u ( c * t +1 ( θ t +1 ))(1δ + F K ( K * t +1 ,Y * t )) ² ² θ t +1 µ < 1 . But does this mean that the eﬃcient allocations can be implemented by a positive tax on capital? Two period example Consider the following example: • T = 2 . • Θ = { , 1 } , π ( θ 1 = 1) = 1 , π ( θ 2 = (1 , 1)) = 0 . 5 and π ( θ 2 = (1 , 0)) = 0 . 5 . (Note that this implies y 2 h = y 2 ((1 , 1)) = l 2 h (1 , 1) and y 2 l = y 2 ((1 , 0)) = 0 ) 59...
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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.
 Fall '10
 wong
 Calculus

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