Consider an economy in which the representative consumer preferences are described by U(C, l) = C^2/5 l^3/5 . The total number of hours available to the representative consumer is h = 1, and the market real wage is w. The representative firm produces the final consumption good using the technology function Y = zN where N is the labour, and z = 3. Assume the government sets the level of its spending to G = 0.75 which has to be financed through a proportional tax t.

1. Find the Pareto optimal allocation (lP O, NP O, YP O, CP O) by solving the social planner's problem.

2. Find the competitive equilibrium allocation (tCE, lCE, NCE, YCE, CCE).

3. What do you conclude?