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Should the Government Intervent Tax - Essay Example

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For instance, government can increase the tax rates on tobacco or related products for the private and social benefits it brings. Firstly, the higher tax rate…
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Should the Government Intervent Tax
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Download file to see previous pages Hence the government, in my view, should intervene through tax rates to keep the economy and society controlled.
Government intervention through tax rates is of paramount importance when negative externalities are to be dealt with. The market consists of two types of goods, public and private. Private goods are associated to the concept of excludability, referring to the exclusion of people from the benefits of a product or service that do not pay for it. On the other hand, public good is non-excludable and benefits the entire population regardless of their non-payment. Free-riding issue arises in this situation leading to chaos and dissatisfaction toward those counterparts of the society who are not contributing enough to the society compared to the benefits they are receiving (for instance healthcare and security/defense facilities for tax-evaders or undocumented immigrants in some cases). Institute on Taxation and Economic Policy (ITEP) has contributed to the knowledge by revealing that undocumented immigrants can be a major source of tax earnings if they are permitted legally to work in the US and would end up increasing the tax contribution by about $2 billion per year (ITEP, 2015).
Government must intervene by changing tax rates to control consumer demands. By increasing tax rates, the government may reduce the disposable income and hence reduce the consumer demand. Similarly, if it wants to increase consumer demand, generally or specifically for certain goods and services, subsidies can be provided and/or tax on that particular product/service can be reduced. Hence, tax rates on specific products, services or industries as well as taxes on individuals and specific population groups can both help governments to keep harmony in the economy.
The government calls funds from the local economy by taxing general public and businesses. These funds are then ...Download file to see next pagesRead More
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