Taxation

We all dislike taxes. They are seen as a (perhaps) necessary evil. An ability to reduce taxes is perceived as an important ingredient for any incumbent government wishing to win a forthcoming general election (see Chapter 13 on political business cycles). Lower taxes produce a ‘feel-good’ factor. It is believed that people do not work as hard as they might due to the existence of taxes. The purpose of this chapter is to look at what economics has to say about taxation. Why do we have to have taxes? Are some taxes better or worse than others? Do some tax systems work better than others? Economic theory has much to contribute on these and other questions relating to taxation.