Practice Prelim 2

The government spending is pure waste from the

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Unformatted text preview: period and nothing in the second period. The government has no ex ante resources of any kind: it finances its spending through uniform income taxation: in the first period it can tax Old and in the second period – Young. The government spending is pure waste from the perspective of the citizens. All parties can freely borrow and lend and they take the interest rate as given. The interest rate is equal to 100%: R = 2. Evaluate the following two policy proposals: (i) Taxes in period one = 10; Tax...
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