Concept of taxation, Macroeconomics

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The Concept of Taxation is explained below:

Taxes are the general purpose, compulsory contributions by people to the public treasury (or national exchequer) to meet the expenditure requirements of the government. Without charging the taxes, the government would not be able to deliver services like law and order, national defence public administration, free or subsidized health and education etc.

As the taxes interfere with market mechanism, they are considered distortionary, and as such there is the long-standing debate over the desirability of the taxes charged. In a way, the stance over taxation describes the economic “right” and “left” in the HICs. The market-friendly right (such as the Republicans in the U.S. or the Conservatives in U.K.) believe in decreasing the size of the government and its spending so that most of services in economy are given by the private sector. As such they can fall out for lowering taxes (since government spending is quite less) which is according to them distorts the private sector incentives (remember that the Monetarist argument for removing income taxes in the context of unemployment). By  contrast, the interventionist left (such as the Democrats in the U.S. or the Labour in U.K.) consider that a large and active government essential for delivery of the better public services and thus are often against cutting taxes and transferring the responsibility of providing these services to private sector.

The Debate over Taxation is explained below:

There are two the dimensions to the debate over taxation which are: 

1)equity, and the other one is 

2) efficiency


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