Taxation
Definition. Taxation is the compulsory levying of charges by the government on incomes, spending, or wealth, providing revenue to finance public expenditure. As an instrument of fiscal policy, changing tax rates alters disposable income and the cost of goods, thereby influencing aggregate demand and the distribution of income.
Direct taxes are charged on income or wealth, while indirect taxes are charged on spending. A cut in taxation raises disposable income and tends to boost consumption and aggregate demand.
This term belongs to Fiscal Policy in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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