Taxation policy is used by almost every in this world today because it is important. Through taxes, governments generate revenues which help to improve the standard of living of people.
Taxes can affect both supply and demand factors of the economy. The state can also provide incentives by reducing marginal tax rates on wages and salaries, for example, can encourage people to work more. The expanding effect of earned income tax credit can bring more low-skilled workers into the labour force. Saving can be encouraged through lower marginal tax rates on the returns to assets. Reducing marginal tax rates means the business can be done by companies domestically rather than abroad. The creation of new ideas can help the economy by researching tax breaks.
Low rates of tax can also have a negative impact on the economy. If there will be lower or no taxes, the government will not be able to fulfil the daily needs of people. Budget deficits can be increased due to high tax cuts. This can increase the debt of the country and eventually the result will be slower economic growth. It also increases borrowing from foreign investors and domestic investment and businesses go down.