A. B. C. Derive mathematically the lifetime budget constraint in this case. (Hint: From micro, what is a proportional tax?) What is the slope of the lifetime budget constraint? Explain briefly why the Ricardian equivalence theorem doesn't really apply in this case.

A. B. C. Derive mathematically the lifetime budget constraint in this case. (Hint: From micro, what is a proportional tax?) What is the slope of the lifetime budget constraint? Explain briefly why the Ricardian equivalence theorem doesn't really apply in this case.

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

ChapterST1: Government Spending And Taxation

Section: Chapter Questions

Problem 3CQ

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Question

Problem 2.
Consider our two-period model. Instead of having lump-sum
taxes t, t', what if we have instead proportional taxes T, T' corresponding to current and
future proportional taxes, respectively.
A.
B.
C.
Derive mathematically the lifetime budget constraint in this case. (Hint: From
micro, what is a proportional tax?)
What is the slope of the lifetime budget constraint?
Explain briefly why the Ricardian equivalence theorem doesn't really apply in
this case.

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