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A Simple General Equilibrium Analysis of the Relationship between Real Tax Revenue and the Tax Rate

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  • Bender, Bruce

Abstract

This paper analyzes the relationship between real tax revenue and the tax rate by developing a simple general equilibrium model in which the level of real output is determined by the real forces in the input markets. The stock-flow nature of the input adjustment process is emphasized. Reasonable parameter values indicate that the value of the tax rate that maximizes real tax revenue is between 72 and 82 percent. This value is sensitive to the supply elasticity of labor, but is quite insensitive to the supply elasticity of saving and fairly insensitive to the elasticity of substitution. Copyright 1989 by Scottish Economic Society.

Suggested Citation

  • Bender, Bruce, 1989. "A Simple General Equilibrium Analysis of the Relationship between Real Tax Revenue and the Tax Rate," Scottish Journal of Political Economy, Scottish Economic Society, vol. 36(4), pages 321-333, November.
    • Handle: RePEc:bla:scotjp:v:36:y:1989:i:4:p:321-33
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