Consider the following one-period model. Assume that the consumption good is produced by a linear technology: Y=zND where Y is the output of the consumption good, z is the exogenous total factor productivity, ND is the labor hours. Government must finance its expenditures, G, using a lump-sum tax, T, on the representative consumer. There is no other tax in the economy. The firm is owned by the representative consumer who is endowed with h hours of time she can allocate between work, NS and leisure, I. Preferences of the representative consumer are: U (C, 1) =alnc+ (1-a) Inl where 0