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Finance & Accounting
Pages 8 (2008 words)
Introduction A tax policy is an instrument that policy makers of a certain state make in order to assist in collection of taxes. It uses different bases on different people and corporations to be able to collect as much tax as possible. These taxes are the major source of revenue for any government in the world and hence the tax policy acts as a guideline in achieving their revenue targets through taxation.
This affects the level of growth in such an economy since most of the income is used on consumption and very little is spent on growth and development. Therefore, the level of growth declines significantly. This can be reversed during economic recovery by use of fiscal policy. This is where the government uses taxation or fiscal policy measures to be able to control the economy (Barro & Gordon, 1984). U.K experienced an economic recession between 1998 and 2012. This was stimulated by the worldwide inflation that was affecting the economy in terms of prices of goods. The government of U.K adopted the use of tax policies to be able to gain economic recovery and growth. Tax policy can be used to stimulate economic recovery and growth in various ways according to Bent (2003). This includes: Increase in demand Increasing demand is a tool for short-term recovery. This can be done through reduction of consumption taxes. In return, people will spend more hence; there will be an increase in demand, which will stimulate business in the economy. Hence, economic recovery in the short run will be achieved. Increase in supply Increasing the supply in the economy would stimulate long-term economic recovery. ...
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