Assume two people, Tom and Rose, live for two periods and are taxed on consumption in both periods. In period 0, Rose has consumption of 50. In period 1, Rose has consumption of 50. Tom has consumption of 40 in period 0. Use the formula below for lifetime consumption tax liability, R i , to find out what Tom's period 1 consumption must be, to ensure that tax liabilities between the two are equal, if the consumption tax rate is 9% and the rate of interest is 4%,
Set these equations equal for each person such that:
Economics
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Economics