Suppose that the government feels sad for athletes and decides to subsidize retired athletes when they’re old. This can’t be free! In order to pay athletes the subsidy G in period 2, the government taxes everyone the amount T in period 1. Note that you pay this whether you go pro or not. Furthermore, the government balances its budget such that G=T. 8. Derive the new intertemporal budget constraints for the pro and non-pro cases in terms of r, C, Y, S, and T. 9. Briefly and intuitively, are you more or less likely to go pro under this government policy, and why? If you are an athlete, how much of your tax T will the government eventually ‘return’ to you
Suppose that the government feels sad for athletes and decides to subsidize retired athletes when they’re old. This can’t be free! In order to pay athletes the subsidy G in period 2, the government taxes everyone the amount T in period 1. Note that you pay this whether you go pro or not. Furthermore, the government balances its budget such that G=T. 8. Derive the new intertemporal budget constraints for the pro and non-pro cases in terms of r, C, Y, S, and T. 9. Briefly and intuitively, are you more or less likely to go pro under this government policy, and why? If you are an athlete, how much of your tax T will the government eventually ‘return’ to you
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose that the government feels sad for athletes and decides to subsidize retired athletes when they’re old. This
can’t be free! In order to pay athletes the subsidy G in period 2, the government taxes everyone the amount T in
period 1. Note that you pay this whether you go pro or not. Furthermore, the government balances its budget such
that G=T.
8. Derive the new intertemporal budget constraints for the pro and non-pro cases in terms of r, C, Y, S, and T.
9. Briefly and intuitively, are you more or less likely to go pro under this government policy, and why? If you
are an athlete, how much of your tax T will the government eventually ‘return’ to you?
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