Exercise 10.2

Labor Subsidies

Problem

Modify the model of Section 10.1.1 by assuming that households have preferences of the type given in equation (9.34) of Chapter 9. Show that a labor subsidy at the firm level financed by a proportional income tax at the household level(i.e., the fiscal scheme studied in Section 10.1.1) can support the Pareto optimal allocation.

Answer

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---
title: "Exercise 10.2"
subtitle: "Labor Subsidies"
---
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## Problem

Modify the model of Section 10.1.1 by assuming that households have preferences of the type given in equation (9.34) of Chapter 9. Show that a labor subsidy at the firm level   financed by a proportional income tax at the household level(i.e., the fiscal scheme studied in Section 10.1.1) can support the Pareto optimal allocation. 

## Answer

_No solution has been posted yet. If you have a solution, we invite you to share it in the comment box at the bottom of this page._