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Taxation WRITTEN BY: Fritz Neumark, Maria S. Cox, Charles E. McLure See Article History Alternative Title: tax
Taxation, imposition of compulsory levies on individuals or entities by governments. Taxes are levied in almost every country of the world, primarily to raise revenue for government expenditures, although they serve other purposes as well. This article is concerned with taxation in general, its principles, its objectives, and its effects; specifically, the article discusses the nature and purposes of taxation, whether taxes should be classified as direct or indirect, the history of taxation, canons and criteria of taxation, and economic effects of taxation, including shifting and incidence (identifying who bears the ultimate burden of taxes when that burden is passed from the person or entity deemed legally responsible for it to another). For
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further discussion of taxation’s role in fiscal policy, see government economic policy. In addition, see
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Kangxi
international trade for information on tariffs.
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Income tax
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Taika era reforms
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Diocletian
other sources of revenue in that they are compulsory levies and are unrequited—i.e., they are
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Tax law
generally not paid in exchange for some specific thing, such as a particular public service, the sale of
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Bureau of Alcohol, Tobacco, Firearms, and Explosives
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Property tax
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Tariff
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Sales tax
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Progressive tax
In modern economies taxes are the most important source of governmental revenue. Taxes differ from
public property, or the issuance of public debt. While taxes are presumably collected for the welfare of taxpayers as a whole, the individual taxpayer’s liability is independent of any specific benefit received. There are, however, important exceptions: payroll taxes, for example, are commonly levied on labour income in order to finance retirement benefits, medical payments, and other social security programs —all of which are likely to benefit the taxpayer. Because of the likely link between taxes paid and benefits received, payroll taxes are sometimes called “contributions” (as in the United States). Nevertheless, the payments are commonly compulsory, and the link to benefits is sometimes quite weak. Another example of a tax that is linked to benefits received, if only loosely, is the use of taxes on motor fuels to finance the construction and maintenance of roads and highways, whose services can be enjoyed only by consuming taxed motor fuels.
READ MORE ON THIS TOPIC government budget: Taxation Most countries raise resources through a variety of taxes, including direct taxes on wage and property income, contributions to trust funds, and a variety of indirect taxes on goods, either at the final point of sale or on the inputs used to make them.…
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Purposes Of Taxation During the 19th century the prevalent idea was that taxes should serve mainly to finance the government. In earlier times, and again today, governments have utilized taxation for other than merely fiscal purposes. One useful way to view the purpose of taxation, attributable to American economist Richard A. Musgrave, is to distinguish between objectives of resource allocation, income redistribution, and economic stability. (Economic growth or development and international competitiveness are sometimes listed as separate goals, but they can generally be subsumed under the other three.) In the absence of a strong reason for interference, such as the need to reduce
SIMILAR TOPICS
pollution, the first objective, resource allocation, is furthered if tax policy does not interfere with market-
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Mercantilism
determined allocations. The second objective, income redistribution, is meant to lessen inequalities in
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Money
the distribution of income and wealth. The objective of stabilization—implemented through tax policy,
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Currency
government expenditure policy, monetary policy, and debt management—is that of maintaining high
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Supply and demand
employment and price stability.
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Panic
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Land
There are likely to be conflicts among these three objectives. For example, resource allocation might
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Inflation
require changes in the level or composition (or both) of taxes, but those changes might bear heavily on
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Mixed economy
low-income families—thus upsetting redistributive goals. As another example, taxes that are highly
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Market
redistributive may conflict with the efficient allocation of resources required to achieve the goal of
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Depression
economic neutrality.
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LEARN MORE in these related articles: government budget: Taxation Most countries raise resources through a variety of taxes, including direct taxes on wage and property income, contributions to trust funds, and a variety of indirect taxes on goods, either at the final point of sale or on the inputs used to make them.…
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government economic policy Government economic policy, measures by which a government attempts to influence the economy. The national budget generally reflects the economic policy of a government, and it is partly through the budget that the government exercises its three principal methods of establishing control: the allocative function, the stabilization function, and the READ MORE
international trade International trade, economic transactions that are made between countries. Among the items commonly traded are consumer goods, such as television sets and clothing; capital goods, such as machinery; and raw materials and food. Other transactions involve services, such as
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travel services and payments for foreign patents (see service industry). International READ MORE
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history of Europe: Poverty Taxes, on top of rents and dues, might be the decisive factor in the slide from sufficiency to destitution. A member of the Castilian Cortes of 1621 described the results: “Numerous places have become depopulated and disappeared from the map. …The vassals who formerly cultivated…
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history of Europe: Nobles and gentlemen …from billeting soldiers and—most valuable—from taxation. The effectiveness of governments can be measured by the extent to which they breached this principle: in France, for example, in the 18th century by the dixième and vingtième taxes, effectively on income; belatedly, in Poland, where nobles paid no tax until the chimney… READ MORE
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MORE ABOUT Taxation 76 REFERENCES FOUND IN BRITANNICA ARTICLES
Assorted References major reference (In government budget: Taxation)
accounting systems (In accounting: Other purposes of accounting systems)
inheritance and succession (In inheritance: Critiques of inheritance)
study by Seligman (In Edwin Robert Anderson Seligman)
government economics control on alcohol consumption (In alcohol consumption: Alcohol control)
consumption (In economic growth: The role of government)
gambling (In gambling: Chances, probabilities, and odds)
inflation (In capital and interest: Contemporary questions)
playing cards (In playing cards: Origin and spread)
tobacco use (In smoking: Taxation)
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