Optimal tax the optimum. Stipulating this condition results in the following formula for the optimal top tax rate, if incomes are Pareto distributed: formula_1 where: Empirical estimation of the parameters of this equation suggests that the revenue-maximising top tax rate is between approximately 50% and 80%, although this estimate neglects long-run behavioural responses, which would imply higher elasticities and a lower optimal tax rate. Saez's analysis can also be generalised to tax rates other than the top rate. In the late 1970s, Arthur Laffer developed the Laffer curve, which demonstrates that there are two effects of changing tax rates: an arithmetic effect—if
Arthur Laffer on the "Board of Scholars" of the American Legislative Exchange Council (ALEC). Laffer was one of four economists who acted as advisors to Donald Trump's successful 2016 campaign for the presidency of the United States. Laffer was born in Youngstown, Ohio, the son of Marian Amelia "Molly" (née Betz), a homemaker and politician, and William Gillespie Laffer, a president of the Clevite Corporation. He was raised a Presbyterian, and graduated from University School high school in 1958. Laffer earned a B.A. in Economics from Yale University (1962) and an M.B.A. (1965) and a Ph.D. in Economics (1972) from Stanford University.