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Taxes are compulsory fees imposed on individuals and other legal entities such as businesses by a government to fund public spending and government spending. Failure to pay taxes is punishable by law. In economics, taxes fall on those who pay their burden. For most governments, taxes are their primary source of income (Lapatinas, 2019). Taxes have a direct effect on the price of goods and services.

Taxes differ from other sources of income in that they are not paid in exchange for a specific thing, such as the sale of a vehicle. They are agreeably collected for the welfare of taxpayers in general but the payer’s liability is independent of any specific service given by the government. The purpose of taxation is to provide the government with revenues to run its affairs such as the military, public welfare, and build infrastructure (Gale, 2014). Taxes enable governments to provide services that would otherwise have not evolved naturally such as public parks. Governments also use taxes to modify consumer behavior and establish income equity.

Governments use different formulas to collect taxes from classes of population and business and different formulas to redistribute resources. Some aspects of taxes include income redistribution, resource allocation, and economic stability (Gale, 2014). Some common forms of taxes include income tax, corporate income tax, inheritance tax, sales tax, and wealth tax. In economics, taxes transfer wealth from individuals and businesses to governments. Most governments seek to maximize economic welfare using taxes. A country’s law stipulates how taxes are to be paid and from whom to collect from. Taxes are also embedded in production costs giving the marketplace power over who bears the tax burden. In the marketplace, taxes can be absorbed by either the seller or the buyer depending on the elasticities of supply and demand (Savic, 2015). More taxes are borne by the supplier if the supply elasticity is low and more taxes are paid by the buyer if the elasticity of demand is low.

























Gale, W. (2014). Effects of Income Tax Changes on Economic Growth. National Tax Journal.

Lapatinas, A. (2019). Taxation and economic sophistication: Evidence from OECD countries. PLOS ONE.

Savic, G. (2015). Impact of the efficiency of the tax administration on tax evasion.

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