Can You Write Down The Instrument Of Fiscal Policy" Taxation"?

Taxation :-It is an  act of laying a tax, or of imposing taxes, as on the subjects of a state, by government, or on the members of a corporation or company, by the proper authority; the raising of revenue; also, a system of raising revenue.Taxation is the most important source of government revenue for both developed and developing countries.  There are two types of taxes: Direct and indirect taxes. A direct tax is paid by the person or the firm on whom it is legally imposed. Indirect tax is imposed on one person, but paid partly or wholly by another person. Public borrowing is an important source of revenue for the government. The government usually uses debentures, bonds, etc., which carry attractive rates of interest, to borrow funds.

1: Taxation is the most effective instrument of fiscal policy in curbing the increased demand of consumer goods. Direct taxes curtail consumption of higher income groups while indirect taxes on goods reduce the consumption of the low income groups as well. Thus the government is able to transfer resources through taxation from private consumption to public investment.

2: Taxation should not only aim at obtaining larger revenue but should also act as an incentive to save and invest. Taxation should not be regressive in nature.

3: Taxes are the most efficient way of transferring resources to the government for more productive utilization.

4: Taxation should modify the pattern of investment in the economy. Taxation should encourage and redirect private investment to more productive channels. This will lead to larger profits which can be pledged back for investment.

5: Taxation is to reduce the inequalities of income and wealth. To reduce the concentration of wealth progressive taxation of gifts, inheritances and wealth is suggested.

6: Taxation should mobile economic surplus for development or enlarges its size.

Thus taxation should eliminate the cyclical fluctuations in the economy. When the economy is facing the inflationary pressure, government should increase taxes while in the time of deflationary pressure, it should decrease the rate of taxes or give tax concessions.