Problem Set #2 Due 10-22-2019 (Section 81) Due 10-23-2019 (Section 01) 1. Assume that the government is thinking about alternative tax schemes. The first scheme is to tax each newly built house $10,000. Call this plan A. The second scheme is to tax both new houses and old houses on an annual basis by an amount that would generate the same revenues in the current steady state. Call this plan B. Assume that either plan would be put in place permanently. Assume that houses depreciate at 2.5% per year and the stock of housing has been constant at 100,000 units with an interest rate of 6% and no ination. A) What must the peryear tax be under plan B? B) How would plan A and plan B affect the steady state levels of housing stocks, housing prices, rental rates, and new construction? C) Which program would generate more tax revenues over time? D) Now assume that each program, if adopted, would be put into place in three years. How would the effects of these programs differ over the next few years? E) What can you learn from this question about investment tax credits? 11. Consider a simple model of residential location. All individuals work at a single central location and must commute to work. Each individual is endowed with a xed amount of time that can be divided between work, commuting and leisure. Individuals care about two things, their amount of leisure, L, and their consumption of a single consumption good, X. Each individual must choose a housing location (and pay the market rent for their chosen housing unit) and decide how many hours to work. Individuals differ in both their preferences and their wage rates. Assume that hmicino lnnntinnc are nlnno a Gin ole hi ohwnv and that the ventral lnnntinn ic at a YRl'l