Preferences for government size and their effect on labor-leisure decisions

While many economists have theorized and/or empirically demonstrated that labor-leisure decisions are influenced by the rate of taxation, this note introduces a new mechanism in which the collecting of taxes on income may affect such decisions. Although standard models assume that agents have no preference for the size and scope of government activity, recent and past political rhetoric suggests that preferences do exist. We examine how labor-leisure decisions can be affected when taxes are derived from income and agents' utility functions include a preference for government size.