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Consider the Barrow tax-smoothing model. Suppose that output, Y, and the real interest rate, r, are constant, and that the level of government debt outstanding at time 0 is zero. Suppose that there will be a temporary war from time 0 to time τ. Thus G(t) equals GH for 0 ≤ t ≤ τ, and equals GL thereafter, where GH > GL. What are the paths of taxes, T(t), and government debt outstanding, D(t)?

Macroeconomics, Economics

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