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Tax Aversion, Optimal Tax Rates, and Indexation

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  • Waud, Roger N

Abstract

Taking account of the costs of tax evasion and avoidance activity, together with the government's costs of tax enforcement, it is shown that the optimal point on a stylized Laffer curve is located on the positively sloped region, not at the maximum point of the curve. The analysis eschews the usual supply-side-type rationale for the Laffer curve and shows that such a curve can arise solely as a consequence of the optimizing tax aversion activity of a utility maximizing economic agent. The analysis further implies that indexation to inflation may be warranted by considerations of economic efficiency.

Suggested Citation

  • Waud, Roger N, 1988. "Tax Aversion, Optimal Tax Rates, and Indexation," Public Finance = Finances publiques, , vol. 43(2), pages 310-325.
    • Handle: RePEc:pfi:pubfin:v:43:y:1988:i:2:p:310-25
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    References listed on IDEAS

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    1. Fullerton, Don, 1982. "On the possibility of an inverse relationship between tax rates and government revenues," Journal of Public Economics, Elsevier, vol. 19(1), pages 3-22, October.
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    Cited by:

    1. Dennis Ridley & Cartreal Davison, 2022. "Optimal Tax Rate for Maximal Revenue Generation," Technium Social Sciences Journal, Technium Science, vol. 29(1), pages 271-284, March.

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