Discussion Paper No.1803

Abstract :
In this study, we discuss the optimal policy when the government controls both tax to finance social and national security and allocation of public funds between them, by introducing national risk into our model. We present the optimal tax and optimal allocation rates when the probability of national risk is equal to or more than 50% and the interest factor is more than the population growth rate. As both optimal rates depend on the probability of national risk, we reveal that a higher probability increases the optimal tax rate and decreases the optimal allocation rate from national to social security

Keywords : Life Risk; Social Security; National Risk; National Security;Optimal Policy

JEL code: E61, E66, H21, H55, H56