Tax revenue is given by R(t) = tB(t), where t [0; 1] is the tax rate and B(t) is the tax base. Suppose that the tax elasticity of the tax base is
a. What is the revenue-maximizing tax rate?
b. Graph tax revenue as a function of the tax rate both for ϒ = ½ and ϒ = 1. Discuss the implications of this Dupuit-Laffer curve