Taxation essay Example | Topics and Well Written Essays - 1500 words

Taxation - Essay Example In recent time different type of taxation function differently and it explain their reason for resource allocation, income distribution and aggregate demand in the economy. According to Modern Monetary Theory, taxation is a necessary tool used in controlling the amount of money in the economy. Taxation ensured that government spending is done while checking on the increase in inflation. Government spending increases the supply of money and boosts the countries spending in the short run. Taxations of the spending ensure that it reduces the supply of money and thus reduces inflations in the long run. Through taxation the governments ‘does eat the cake and have it.’ Public expenditure ensures people are provided the necessary services and at the same time government collect revenue out of money paid in completion of its projects. All forms of taxations are believed to have an impact on the allocation of resources with except of poll tax. Taxation changes the relative prices of goods and services making both producers and consumers adjust accordingly whenever there are changes in taxations (The principles of Taxation). Therefore, government taxes producers in specific economic sectors to discourage the inefficiency. For example, the increase in alcohol beverages taxation is ensured to discourage on the consumption of alcohol in the economy. According to the U.K government, the consumption of alcohol reduces the productivity of the people which in turn reduces the countries incomes. In an economy, there are public and private goods. Moreover, the production of these goods results to production of externalities as byproducts. The production process can produce negative and positive externality, and it is the function of government to control on the production of the negative externality. This reason gives the government power to use the power of taxation to minimize or remedies the