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Tax Aversion, Optimal Tax Rates, and Indexation

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  • Roger N. Waud

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

  • Roger N. Waud, 1988. "Tax Aversion, Optimal Tax Rates, and Indexation," NBER Working Papers 2643, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2643
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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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