Chapter 16, Problem 18AA

To determine

To ascertain the identification of the two principles of taxation and give an example of each.

Explanation of Solution

The various levels of government use several different major taxes to raise revenue. Usually taxes are needed to give according to one of two major principles. They are benefits − received principle, and other is ability to pay principle.

Under Benefits received — A tax fairness principle which states that people must make taxes payment in proportion of benefits receive from government goods and services. Two examples of such tax includes gasoline taxation and excise tax

Where as under ability to pay tax states citizens should pay more in taxes under the capacity to pay theory, since they can afford to pay more. Two example of such are personal income tax and corporate income tax.

Economics Concept Introduction

Introduction: Governments levy charges on their residents and companies as a way to collect taxes, which are then used to meet their budgetary demands. This includes financing government and public programs, and making the country's market climate conducive to economic development.