Introduction to Income Distribution

The Laffer Curve & The Optimum Tax Rate

• The model would suggest that there is an optimal direct tax at which government revenue is maximized.
• Clearly this optimum tax level will vary from country to country, and would not necessarily be at the 50% implied by the diagram.

EXAMINATION QUESTIONS
Short Response Questions (10 marks each)

• Distinguish between a progressive tax system and a regressive tax system.


2. Using a diagram, explain the concept of the Laffer curve

EXAMINATIONS QUESTIONS
Essay Question
1a. Explain two ways that a government might redistribute income in an economy from the more well-off to the less well-off.
1b. Evaluate the consequences of income redistribution policies on an economy.