Taxes: How they effect the economy and Government Spending

Running head : Effects of taxes

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Abstract

The changes in taxes rates have different effects on government spending and the economy as a whole . Studies indicate that there is a correlation between the economic activities and taxation . They continue to show that increase in economic activities leads to increased tax revenues . Government changes the tax rates for different developments in the economy (Bartlett , 2009 . Tax is usually used as tool to reduce or increase the amount of money in supply and these two

affect the economic activities and government spending significantly . The aim of this is to discuss how taxes affect the economy and government spending

Introduction

Increase or reduction in taxes has negative and positive effects on government spending and the economy . Taxes serve to increase the revenue of the government . It comes from different sources and it serves different purposes . The government allocates funds to different sectors according to the needs of the sectors or their importance . It caters for weapons , smooth roads , social security benefits and government employees ' salaries among other expenses . Government spending means transferring funds from its account to the public (Poterba , 2006

Effects of lowering taxes

Reducing the amount of tax paid has different effects on the economy It means leaving the money with the people rather than the government This increases their purchasing power and increases their confidence as consumers . This makes them to spend more of their earnings thus increasing the number of jobs available . It also...