what happens to tax revenues as tax rates increaseSolutionAn

what happens to tax revenues as tax rates increase?

Solution

Answer

The increase in tax rates first increases tax revenue and afterward decreases.

Because,

the very high tax decreases the equilibrium quantity where tax revenue=quantity*tax

at last when there is the very high tax then there is no demand so the tax revenue is zero, also at starting point if there is no tax then there is no tax revenue.