Question

Discuss the following questions: Why do governments charge taxes? What are user fees and user charges and why do governments use themin place of taxes in some cases? How can taxes be used as a “tool” toward a social policy end?

Answer 1

Government charges taxes to raise revenue and then use that revenue to pay salaries, create jobs and employment and also do public spending in creating infrastructure and also maintain militaries for ensuring national security.

For certain infrastructure, governments also levy user charges to recover the initial cost to set up the infrastructure. This is more effective than just charging taxes on all citizens for creating a specific infrastructure which would be used by only a specific set of citizens. This ensures better equity and levy of charges as per use which is fair in every sense.

Taxes can be used as a tool to extract wealth from rich and well off section of the society and then this can be used to provide basic minimum income to the poor thus ensuring a greater sense of economic equality in the society.