Quick Answer: How Can Taxes Be Used By The Government To Encourage Or Discourage The Use Of A Certain Good Or Service?

What is the importance of paying taxes to the government?

Helps Build the Nation The cost of running an entire country, especially one that is as large and populated as ours, is humongous.

It is through the taxes we pay that the government can perform civil operations.

In other words, without taxes, it would be impossible for the government to run the country..

Why it is necessary for the government to impose taxes?

There are some key reasons why government needs to levy taxes; the main ones are: To raise revenue to finance government spending. Managing aggregate demand – to help meet the government’s economic objectives. Changing the distribution of income and wealth.

What items are taxed for the purpose of changing behavior?

So-called “sin taxes” are implemented for the purpose of changing behavior. They are usually levied on items like cigarettes, alcohol, or…

What are the two main principles of taxation?

These are: (1) the belief that taxes should be based on the individual’s ability to pay, known as the ability-to-pay principle, and (2) the benefit principle, the idea that there should be some equivalence between what the individual pays and the benefits he subsequently receives from governmental activities.

What are the reasons for taxation?

The reasons to taxReclaiming the money the government has spent into the economy. … Ratifying the value of money. … Reorganising the economy. … Redistributing income and wealth within the economy. … Repricing goods and services. … Raising representation in a democracy.

How do sin taxes affect consumer behavior?

‘Sin tax’ is defined as a tax on a product that can be harmful to a person, such as cigarettes or sugary drinks. … But sin taxes can disproportionately hurt lower-income consumers, while wealthy shoppers enjoy tax breaks on items only they can afford, such as energy-efficient windows and appliances.

How does the government use taxes to influence behavior?

Below are three excise taxes designed to influence the behavior of taxpayers. All are direct tax. A sin tax is a significant tax on a product or service that is unhealthy. The tax is used to discourage the purchase and use of products that pose a risk to health, such as tobacco and alcohol.

What tool does the government use to regulate spending and taxation?

The government possesses two major fiscal tools to influence the economy. These tools can be divided into spending tools and revenue tools. Spending tools refer to the overall government spending. On the other hand, revenue tools refer to taxes collected by the government.

How does sales tax affect the economy?

A sales tax, to the extent that it increases the prices of goods and services, influences consumption expenditure and saving in two ways: … Reduction of an individual’s real income by a tax-induced price increase affects his spending and saving according to the relative elasticities of his spending and saving schedules.

What happens when a tax is imposed on a good?

When the tax is imposed, the price that the buyer pays must exceed the price that the seller receives, by the amount equal to the tax. … There are two main effects of a tax: a fall in the quantity traded and a diversion of revenue to the government. These are illustrated in Figure 5.4 “Revenue and deadweight loss”.

How do taxes influence consumer decisions?

While sales tax affects supply directly, it only has an indirect effect on consumer demand. … When sales tax rates are high, consumers spend more money on taxes and have less to spend on additional goods. This drives down general demand, or forces businesses to reduce prices to keep demand steady.

What are the four principles of taxation?

In The Wealth of Nations (1776), Adam Smith argued that taxation should follow the four principles of fairness, certainty, convenience and efficiency. Fairness, in that taxation should be compatible with taxpayers’ conditions, including their ability to pay in line with personal and family needs.