Anett Balázs
Economics IB 2 HL
13/10/2010
What are taxes?
Taxes are a compulsory transfer of money (or occasionally of goods and services from private individuals, institutions or groups to the government. It maybe levied upon wealth or income, or in the form of a surcharge on prices. Taxation is one of the principal means by which a government finances its expenditure.
Reasons for taxation
• To pay for government expenditure. Governments need to raise finance for their expenditure programmes. If the governments want to avoid inflation, then they will have to increase taxes or they can borrow a limited amount of money.
• To correct maker failure such as externalities. Governments can intervene in individual markets by changing taxes and this changing demand. Such as raising higher taxes in cigarettes in order to reduce the tobacco consumption, the VAT (value-added tax) could be increased. This way the taxation becomes a way of increasing economic
...
Read more »
