ECON 2202 Lecture 14: Ch3. Two-period Model. Optimal B vs Optimal T and T'

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31 May 2019
School
Department
Course
Professor
Two-period model
Consumers
Preference. C. C'. U(C,C')
-
Budget constraint
Period 1:
!" # "$" % "&" ' "(
Period2:
!)" % " *+ # ,-$" # &)" ' "()
Lifetime:
! # ./
012 % & # 3/
012 ' 4 ' 5/
012
-
Government
Given : G. G'
-
How to finance G, G'? (B, T, T')
Taxes T, T'
Debt (Government bond) B
-
Budget constrain
Period 1:
6 % ( # 7
Period 2:
68#
*
+ # ,
-
%()
Lifetime:
-
Optimal B vs Optimal T and T'
Optimal timing of taxation?
Answer: any level
Ricardian equivalence
The timing of taxation does not influence people's decision.
t: individual tax
T: aggregation tax
Set population size = 1
t=T. t'=T'
Old policy: B. T. T'
New policy: B-δ, T+δ, Tʹ-δ(1+r)
Q: How does this policy change affect C and C'?
Lecture2
Thursday, October 18, 2018
11:10 AM
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