How effective is taxation as an influence on economic behavior.pdf - How effective is taxation as an influence on economic behavior Economics

How effective is taxation as an influence on economic behavior.pdf

This preview shows page 1 - 3 out of 6 pages.

How effective is taxation as an influence on economic behavior Economics Introduction A tax, which is a word derived from a Latin word taxo is used to refer to a compulsory or obligatory financial charge or any other type of levy that citizens have to pay. People paying tax are called the taxpayers, who are mandated by the government to pay taxes on the products and services they use. Since the obligation to pay tax is in the law, every citizen pays tax either directly or indirectly. All over the world, governments and their equivalents have used the principle of revenue collection through taxes as a way of soliciting funds for their functions including the expenditure needs for infrastructures, scientific research, military requirements, arts and culture, public works, public insurance, collection and dissemination of data, distribution, and government operations. Most countries institute tax systems geared towards paying for common, public, and agreed on national needs as well as various government functions (Allen, Vayanos & Vives, 2014). To achieve this, some nations levy flat-rate taxation in terms of percentages on annual, personal income, others impose almost no tax, while others base their taxes on annual income amounts. It is important to understand how taxation influences government economy and how various types of tax such as sin tax, fuel excise tax, and luxury tax influence economic behavior. Excise Taxes Sin tax One of the ways that governments influence the economic behavior of an individual through the use of tax by imposing a sin tax on the taxpayers. The main purpose most governments levy taxes is to raise money or revenue to be used in funding the various governing needs. Another reason is to alter the prices of services and goods as a way of influencing their demand. Sin taxes are levied on specific goods, which are deemed as harmful to society. Some of the goods subject to sin tax in the United