Consider the effects of taxes imposed on both labor and capital income. The production function takes the standard Cobb-Douglas form: Y = Kª (AN)¹-ª The tax rate equals í, saving rate equalss, the rate of technological progress = g, capital depreciation rate = d, and population growth rate = n. The government spends tax revenues on consumption goods, so that government savings are equal to 0. a) Write down the production function in the intensive form. Use the dynamic equation for capital per units of effective labor to compute the value of consumption per units of effective labor in the steady state. b) Compute the golden rule saving rate in the Solow growth model extended to include taxes. c) Use the Basic Solow growth graph with the saving and production functions drawn

Consider the effects of taxes imposed on both labor and capital income. The production function takes the standard Cobb-Douglas form: Y = Kª (AN)¹-ª The tax rate equals í, saving rate equalss, the rate of technological progress = g, capital depreciation rate = d, and population growth rate = n. The government spends tax revenues on consumption goods, so that government savings are equal to 0. a) Write down the production function in the intensive form. Use the dynamic equation for capital per units of effective labor to compute the value of consumption per units of effective labor in the steady state. b) Compute the golden rule saving rate in the Solow growth model extended to include taxes. c) Use the Basic Solow growth graph with the saving and production functions drawn

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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