Solution-Formula for tax revenues as a function of the tax

Formula for tax revenues as a function of the tax rate

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Reference no: EM131738991

Laffer curve. In an economy, the supply curve of labor S is given by S = -100 + 200w_twhere w_t is the after-tax wage rate. Assume that the before-tax wage rate is fixed at 10. Thus

w_t = (1 - t)*10.

a. What is a formula for tax revenues as a function of the tax rate, and sketch the function in a diagram with the tax rate on the horizontal axis and tax revenues on the vertical axis (i.e., a Laffer curve). Suppose that the government currently imposes a tax rate of 70 percent. What advice would you give it?

b. At what tax rate are tax revenues maximized in this economy?

Reference no: EM131738991

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Formula for tax revenues as a function of the tax rate

Reference no: EM131738991

Reference no: EM131738991

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