Suppose preferences for consumption and leisure are: u(c, l) = ln(c) + θ ln(l)
and households solve:
max c,l u(c, l)
s.t. c=w(1−τ)(1−l)+T
Now suppose that in both Europe and the US we have:
θ = 1.54
w=1
but in the US we have:
τ = 0.34
T = 0.102
while in Europe we have:
τ = 0.53
T = 0.124
Compute the amount of leisure and consumption chosen in the US and Europe. Use the parameters given for each country.
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