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Consider a one-period model with optimizing consumers and profit-maximizing producers who are price-takers. Government spending is financed by lump-sum taxation, and its budget is balanced.

Consider a one-period model with optimizing consumers and profit-maximizing producers who are price-takers. Government spending is financed by lump-sum taxation, and its budget is balanced.

How does this affect the choice of consumption and leisure, and how well does this match the data?

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