Question

Suppose you are hired by the local government to calculate an optimal tax rate on some specific industry activity. The following information is available to you:

• t: is the tax rate per $ of Industry Value Added, and it varies between 0 and 1.
• The tax base is the Industry Value Added, which decreases with the tax rate according to this equation: Industry Value Added (in $) = 10 - 10t

Based on this information, the tax rate that will maximise government revenue will be:??

Answer 1