Why do we have taxes?

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Why do we have taxes?

Taxes are important for a number of reasons. In the UK, the government provides health care, defence and education, as well as things like libraries. These services are paid for (taxes) and produced by the public sector. The government also pays the private sector for goods and services such as new roads and electricity for street lamps.

Taxes can also be used to change demand in certain markets, in order to promote or discourage activity. For instance, by imposing taxes on goods with negative externalities, such as alcohol and pollution producing services, demand is decreased and so are the negative side effects of production. Similarly, by exempting books from VAT, demand increases, resulting in a more books being bought and read.

Governments may alter the tax rate in order to manage the economy as a whole. The tax rate can influence unemployment, inflation and the balance of payments, and being able to alter it is useful for the government should they need to change these variables. For example reducing tax may result in consumers having more income, which may result in them buying more imports.
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Finally, taxes enable governments to redistribute income and wealth from rich groups in society to poorer groups, resulting in a more equitable system. Examples of this include Social Security benefits and pensions.

"In recent years UK governments, irrespective of political barrier, have changed the structure of UK taxes."

b) Why have they done this? What have been the consequences?

There are two classifications of taxes. A direct tax is a tax levied directly on an individual or organisation, such as income tax. Indirect taxes, on the other hand, are levied on goods and services, ...

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