Proceedings from the ECFIN Workshop "The budgetary implications of structural reforms" - Brussels, 2 December 2005

or

0 = £b - τPAY G] yιt + 1+r £b - τP+AIYG] y1t+1
+ μ 1+7 )2 £b - τ P+2YG ] y1t+2......

and therefore

∞i

_τ =X I ^{1 + g} ʌ _τPAYG

i=0 (j + ^rJ  ^t+i

i.e. the sustainable tax equals the present value of the PAYG-tax calculated
by the growth corrected real rate of interest. Note that this presumes that the
initial debt level is zero.

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