Consider a household that maximizes utility from consumption over two periods \max _{C_{1}, C_{2}} u\left(C_{1}\right)+\beta u\left(C_{2}\right) Without any taxation, the household would be subject to the usual inter temporal budget

constraint C_{1}+\frac{C_{2}}{1+R}=W Now, suppose that there is a government that needs to spend G in period 1. This spending must be paid for by taxing the household. The government can either collect a lump sum tax from the household in period 1, or borrow the necessary amount through the international financial market at interest rate RG and repay the loan (including interest) by collecting a lump sum tax from the household in period 2. (1) Assume RG < R. Is it better for the household if the government taxes in period 1, or period 2?Show it mathematically (2) Does the Ricardian equivalence hold? Explain why or why not.

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