Suppose that there are two groups of consumers in the population, constrained and unconstrained, with equal numbers
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Suppose that there are two groups of consumers in the population, constrained and unconstrained, with equal numbers of each. The constrained consumers look like the ones in Figure 10.5, while the unconstrained consumers have so much housing wealth that collateral to support any amount of borrowing they would like to do is not a problem. The government decides that it will tax each of the unconstrained consumers an equal amount in the current period and distribute this tax revenue equally among the constrained consumers as transfers.
Figure 10.5:
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в y' -t' 12 н y-t c = Current Consumption c' = Future Consumption
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