Let's incorporate the labor-leisure trade-off and capital income taxes in the two-period model. Let c₁, c₂ be consumption in two periods, I the number of hours worked, Te, Tez the proportional taxes on consumption in 2 periods, s the saving rate, w the wage rate, b pension in the 2nd period, and 7, the tax on savings (capital income tax). The household's maximization problem in this case is: given by maxe₁,e2,8,1-1 log(c₁) + log (1-1)+6log(c₂) such that (1+₁)C₁+8 = (1-7)wl and (1+T₂)₂ = [1+r(1-T₁)]s+b, where measures how the household values leisure vis-a-vis consumption. A. Explain in English the meaning of the objective function and the 2 constraints.

Let's incorporate the labor-leisure trade-off and capital income taxes in the two-period model. Let c₁, c₂ be consumption in two periods, I the number of hours worked, Te, Tez the proportional taxes on consumption in 2 periods, s the saving rate, w the wage rate, b pension in the 2nd period, and 7, the tax on savings (capital income tax). The household's maximization problem in this case is: given by maxe₁,e2,8,1-1 log(c₁) + log (1-1)+6log(c₂) such that (1+₁)C₁+8 = (1-7)wl and (1+T₂)₂ = [1+r(1-T₁)]s+b, where measures how the household values leisure vis-a-vis consumption. A. Explain in English the meaning of the objective function and the 2 constraints.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.2P

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