What are the factors underlying government taxation and spending decisions?
What will be an ideal response?
There are four main factors underlying government taxation and spending decisions:
i. The government imposes taxes and provides subsidies to correct externalities.
ii. Most taxes are imposed to raise revenues to provide public goods like national defense, police protection, and infrastructure projects.
iii. Governments use transfer payments and the tax system to limit the extent of inequality and economic hardships that poorer households in society suffer.
iv. The government also collects taxes in order to pay for their own operations, including the salaries of presidents, congressmen and other politicians, and for the bureaucracy in charge of the day-to-day running of government operations and services.
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According to economic theory, the political process tends to
A) benefit every participant equally. B) harm every participant equally. C) concentrate benefits in the hands of special interest groups and disperse the costs throughout the uninformed voters. D) support public projects that clearly pass a strict benefit-cost analysis.
The tendency of suppliers to offer more of a good at a higher price:
a. subsidy b. supply schedule c. law of supply d. elasticity of supply e. excise tax