Tax revenue is given by R(t) = tB(t), where t [0; 1] is the tax rate and B(t) is the tax base. Suppose that the tax elasticity of the tax base is a. What is the revenue-maximizing tax rate? b. Graph tax revenue as a function of the tax rate both for ϒ = ½ and ϒ = 1. Discuss the implications of this Dupuit-Laffer curve.

Tax revenue is given by R(t) = tB(t), where t [0; 1] is the tax rate and B(t) is the tax base. Suppose that the tax elasticity of the tax base is a. What is the revenue-maximizing tax rate? b. Graph tax revenue as a function of the tax rate both for ϒ = ½ and ϒ = 1. Discuss the implications of this Dupuit-Laffer curve.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 17SQ

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