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Recall that tax revenue is ๐œ๐‘ค๐ป๐‘

Recall that tax revenue is ๐œ๐‘ค๐ป๐‘. The Laffer curve is tax revenue as

a function of the tax rate and only exogenous variables and parameters. Use the expression you derived (๐ป=(1โˆ’๐œ)^(๐œ‚/(๐œ‚+1)๐œ“^(โˆ’๐œ‚/(๐œ‚+1)) as well as the labor demand curve (A = W) to derive an expression for tax revenue that is a function of only the tax rate ๐œ and exogenous variables (๐ด,๐‘) and parameters (๐œ‚,๐œ“). Then find the top of the Laffer curve. In other words, derive an expression for the tax rate that yields maximum tax revenue as a function of the exogenous parameters (๐œ‚,๐œ“).

 

 
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