Consider the Solow grow model. Suppose for each unit of savings,
the government consumes a fraction τ , so only the fraction 1 − τ
would accumulate the capital stock. In other words, the law of
motion for capital becomes:
K1= (1 − δ)K + (1 − τ )sY
where δ is the depreciation rate, s is the saving rate, and Y is
aggregate output. Suppose production function is Y = zF(K, N).
Follow the same steps we did in...