Recall that tax revenue is 𝜏𝑤𝐻𝑁. The Laffer curve is tax revenue as
a function of the tax rate and only exogenous variables and parameters. Use the expression you derived (𝐻=(1−𝜏)^(𝜂/(𝜂+1)𝜓^(−𝜂/(𝜂+1)) as well as the labor demand curve (A = W) to derive an expression for tax revenue that is a function of only the tax rate 𝜏 and exogenous variables (𝐴,𝑁) and parameters (𝜂,𝜓). Then find the top of the Laffer curve. In other words, derive an expression for the tax rate that yields maximum tax revenue as a function of the exogenous parameters (𝜂,𝜓).
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