What represents the governmental tax rate that will best maximize tax revenues?

The Laffer curve illustrates the relationship between tax rates and tax revenue, showcasing that there is an optimal tax rate that maximizes tax revenue. According to this concept, if tax rates are set too low, government revenue will be insufficient due to the minimal taxes collected. Conversely, if tax rates are excessively high, it may discourage work and investment, leading to decreased economic activity and ultimately lowering total tax revenue.

The shape of the Laffer curve suggests that there is a sweet spot—an optimal tax rate—where revenue is maximized before the disincentives of high taxes kick in. This concept serves as a reminder that not all increases in tax rates lead to proportional increases in tax revenue, making it critical for policymakers to understand where that peak revenue rate lies.

The marginal tax rate indicates the rate applied to the next dollar of income, while the average tax rate is calculated as total taxes paid divided by total income. Both rates provide useful insights but do not directly imply the revenue-maximizing tax rate. The old-age dependency ratio refers to the ratio of older dependents (typically defined as those aged 65 and over) to the working-age population, which is important for understanding demographic trends and economic burden, but does not relate to maximizing