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Taxation and Growth - Essay Example

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Taxation and Growth

If the government would reduce their taxes, the little income that would be saved would stimulate demand and hence help the economy recover from recession. This is because low-income earners have little to save and to invest meaning that most of their income is used to buy basic commodities. As a result, demand increases and the economy grows significantly. Increase taxes on consumption Consumption is a daily activity for every person. This gives the government a chance to utilize the revenue they get from taxing such consumption. An example of such taxes is Value Added Tax. This tax is imposed on most of the goods that are for consumption. Increasing such taxes enables the government to collect a lot of revenue which will aid it in investment projects that had been budgeted for such as improving infrastructure. This will in the end lead to growth in the economy. This additional revenue helps reduce the budget deficit and thus lead to growth. Increasing government expenditure The government includes in its budget an amount to cater for its expenditures. Such expenditures include; transport and communication, security, youth and women empowerment healthcare and education. By increasing government expenditure, the economy will be stimulated, and hence in the end it will increase the growth rate. Government expenditure can be either productive or non-productive. Productive expenditure is said to have a direct impact on increasing growth in an economy as opposed non-productive expenditures. However, this poses a great challenge for the policy makers since it is not easy to classify expenditures as either productive or non-productive. However, increase in the government expenditure leads to growth since...
This essay is based on the fact that, various economies can be faced by a recession, which can be dangerous. According to Larch and Nogueira use of fiscal measures comes in handy to help the economy be able to recover and also increase its growth rate. These fiscal measures ensure that the supply of money in the economy is controlled to avoid excess money supply, which fuels inflation. In addition, the fiscal measures help the government to be able to stimulate aggregate demand and in the long-run increase the growth rate. The government needs a lot of funding to be able to achieve its budget. This is mainly from taxes that are collected according to different bases and finance the budgets. Therefore increasing the taxes means that the government is able to collect a lot more resources that usable to stimulate the economy through investments and hence lead to increased growth rate. During this analysis, this essay has found that as much there are various benefits of using the fiscal policy to gain economic recovery and growth, there are also negative effects as earlier mentioned. These include unemployment, low savings and investment, high prices for basic goods and many others. The researcher of this essay also recommends that various policy makers should take into account these negative effects in order to be able to attain growth in the end. Finally, in order to safeguard an economy from suffering a recession, it is essential to be able to guard against the factors that may lead to a recession. ...Show more


This essay describes the tax policy, that is an instrument that policy makers of a certain state make in order to assist in collection of taxes. The researcher discusses that tax policy can be used to stimulate economic recovery and growth in various ways in the U.K…
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Taxation and Growth essay example
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