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2] Consider the two-period consumption problem with exogenous income and given interest rate r. Suppose that the government taxes interest income at the rate T.
2] Consider the two-period consumption problem with exogenous income and given interest rate r. Suppose that the government taxes interest income at the rate T. The government's revenue will be zero in period 1 and TI'[Y1 C1) in period 2. a] Write out the individual's budget constraint. b] Now suppose the government eliminates the taxation of interest income and instead institutes lump-sum taxes of amounts T1 and T2 in the two periods. c] Write out the individual's budget constraint under this alternate tax regime. d] What condition must the new taxes satisfy so that the change does not affect the present value of government revenue? e] If the new taxes satisfy the condition in part [d] is the old consumption bundle, not affordable, just affordable, or affordable with room to spare? f] If the new taxes satisfy the condition in part [d] does rst-period consumption rise, fall, or stay the same? 3] Labor force participation in the Solow model a] Write down a version of the Solow growth model in which the labor force is a fraction 9 of the population. For simplicity, assume no population growth
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