Suppose that individuals have endowments of y1 when young, y2 when old, and can save only through
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Question:
Suppose that individuals have endowments of y1 when young, y2 when old, and can save only through money. The stock of fiat money is constant, and the population grows at rate n > 1. Every period, the government taxes each old individual a lump-sum of goods and uses the total receipts to make equal transfers to the young in that period. However, tax collection is costly: for every unit collected from the old only 1/3 is available for the young. Assuming a stationary allocation, the lifetime budget constraint of an individual is,
(a)c1+(1/n)c2y1+(y2/n)- (1/3)
(b)c1+(1/n)c2y1+(y2/n) (2/3)(/n)
(c)c1+(1/n)c2y1+(y2/n) (2/3)
(d)c1+(1/n)c2y1+(y2/n) (1/3)(/n)
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