Home » U(c, c’ ) = u(c) + u(c 0 ) where (0, 1) and u is a concave increasing differentiable function. Assume there is a government who uses a sales tax to…

# U(c, c’ ) = u(c) + u(c 0 ) where (0, 1) and u is a concave increasing differentiable function. Assume there is a government who uses a sales tax to…

U(c, c’ ) = u(c) + βu(c 0 ) where β ∈ (0, 1) and u is a concave increasing differentiable function. Assume there is a government who uses a sales tax to finance G and G’ (there is no lump-sum tax). That is, for each unit of c the household purchases, they must pay τ c to the government and for each c’ must pay τ ‘ c ‘.

Answer the following: 1. Derive the two-period budget constraint of the household. 2. Derive the lifetime budget constraint of the household. 3. Derive the two-period budget constraint of the government. 4. Derive the lifetime budget constraint of the government. 5. Write down the household problem. 6. What is the household’s FOC? This is also called the Euler equation. 7. If β(1 + r) = 1 and τ = τ ‘> 0, what must be the relationship between c and c ‘ ? How does this relationship compare with the zero tax environment, τ = τ ‘= 0? 8. What is credit/bond market clearing here? 9. What is the definition of competitive equilibrium here? 10. Does Ricardian equivalence hold in this environment? That is, suppose τ and τ’ change, G and G’ remain the same, and the government budget constraint still holds. Is there any effect on c, c’ , s, or r? What is the economic reason for your answer? HINT: here MRS(c,c’)= (1 + r) ((1 + τ ‘)/ (1 + τ)) If τ ↑, then τ ‘↓. Does this change the household’s consumption decision?

## Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
\$26
The price is based on these factors:
Number of pages
Urgency
Basic features
• Free title page and bibliography
• Unlimited revisions
• Plagiarism-free guarantee
• Money-back guarantee
On-demand options
• Writer’s samples
• Part-by-part delivery
• Overnight delivery
• Copies of used sources
Paper format
• 275 words per page
• 12 pt Arial/Times New Roman
• Double line spacing
• Any citation style (APA, MLA, Chicago/Turabian, Harvard)

# Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

### Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

### Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

### Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.