The tax rate that maximizes the revenue generated by a tax
A) is highly efficient, and therefore, the government should always seek to impose this rate.
B) is an ideal tax rate from the standpoint of a government that wants to minimize the deadweight loss (or excess burden) accompanying taxation.
C) is, from an efficiency standpoint, superior to any lower rate of taxation.
D) will impose a large deadweight loss (excess burden) relative to the marginal revenues collected, and therefore, a government interested in the welfare of its citizens should select a lower tax rate.

Question

Quizplus · Accepted Answer

The tax rate that maximizes revenue often leads to a large deadweight loss, meaning it can be inefficient and harmful to economic welfare. Therefore, governments interested in minimizing economic distortions and promoting welfare might opt for a lower tax rate.

The Tax Rate That Maximizes the Revenue Generated by a Tax