A Formal Model to Study Time Inconsistent Fiscal Policy aSSume CD production technology, 9 0 with capital output elasticity 0 and fixed labor(normalized to 1). Public spending is financed by capital income tax Given g and balanced budget, households Behavior is the following v,(k,)=max h cr+In g,+ BV4(k, 1) st.c1+k1=(1-r0)k0 To obtain analytical solution, here we assume 100%o depreciation. Solving this problem recursively, we have (1-x11O)k1-k BV(k 1(k)=C(M(x)=0= T,Okr 复9大学经学院 B0(1-x7)1-x1O) ,0+B0(1❖ Assume CD production technology, with capital output elasticity θ and fixed labor (normalized to 1). Public spending is financed by capital income tax: A Formal Model to Study Time Inconsistent Fiscal Policy  t  t  t g = k • Given g and balanced budget, households’ Behavior is the following: ( ) ( ) ( )      t t t t t t t t t t st c k k V k c g V k + = − = + + + + + . . 1 max ln ln 1 1 1 • To obtain analytical solution, here we assume 100% depreciation. Solving this problem recursively, we have ( ) ( ) ( ) ( ) ( ) T T t T T T T k V k U c MR k     − − = = 1 1 ' ' ( ) ( ) T T T T T V k k k ' 1 1 1 1     = − − − − ( )( ) ( ) 1 1 1 1 1 1 − − − + − − −  = T T T T T T k k          