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Consumers live for two periods and have the following lifetime utility: U = ln c1 + ln c2 (1) Where c1 and c2 are consumption
Consumers live for two periods and have the following lifetime utility: U = ln c1 + ln c2 (1) Where c1 and c2 are consumption in the first and second period respectively and is the discount factor. Everyone has full-time contracts and cannot change their hours of work. They receive exogenous income Y1, profits 1 and pay lump sum taxes T1 in the first period and Y2, 2 and T2 respectively in the second period. Consumers can buy or sell any amount of bonds at the same interest rate .
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