How should the optimal tax rates be adjusted

Reference no: EM133336604

Question: Under assumptions of the commodity tax model discussed in class, we showed that the optimal (proportional) tax rates on two different are related by where z are tax rates T2 and n, are own elasticities of demand. Suppose that the size of the market for good 2 doubled but the elasticity remained unchanged and the amount of revenue that we want to collect has not changed either. How should the optimal tax rates be adjusted?

Reference no: EM133336604

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