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Suppose a pay-as-you-go social security system where social security is funded by a proportional tax on the income of the young. That is, the tax collected by the government is yy, where y is the tax rate and y is income of the young. Retirement benefits are given out as a fixed amount b to each old consumer.

Suppose a pay-as-you-go social security system where social security is funded by a proportional tax on the income of the young. That is, the tax collected by the government is yy, where y is the tax rate and y is income of the young. Retirement benefits are given out as a fixed amount b to each old consumer.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose a pay-as-you-go social security system where social security is funded by a proportional tax on the income of the young. That is, the tax collected by the government is yy, where y is the tax rate and y is income of the young. Retirement benefits are given out as a fixed amount b to each old consumer.
Transcribed Image Text:Suppose a pay-as-you-go social security system where social security is funded by a proportional tax on the income of the young. That is, the tax collected by the government is yy, where y is the tax rate and y is income of the young. Retirement benefits are given out as a fixed amount b to each old consumer.
Find the consumer's budget constraint when old, where c' and y' indicate consumption and income of the consumer when old, respectively. Oc=y' + y + (1+r)s Oc=y+b+ (1+r)s Oc=y' + (1+r)s Oc=y' + (1+r)(b + s)
Transcribed Image Text:Find the consumer's budget constraint when old, where c' and y' indicate consumption and income of the consumer when old, respectively. Oc=y' + y + (1+r)s Oc=y+b+ (1+r)s Oc=y' + (1+r)s Oc=y' + (1+r)(b + s)
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