Determine the relative income of these two economies

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Consider the expanding input variety model of Section 13.1, and assume that corporate profits are taxed at the rate τ.

(a) Characterize the equilibrium allocation.

(b) Consider two economies with identical technologies and identical initial conditions but with different corporate tax rates, τ and τ' . Determine the relative income of these two economies (as a function of time).

Reference no: EM131135689

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