Taxation
Plain definition
Compulsory payments levied by governments on income, consumption, wealth, or transactions to fund public spending.
In economics
Taxes do three economic jobs: raise revenue, redistribute income (through progressivity), and correct externalities (e.g., carbon or tobacco taxes). They also affect behavior: income taxes can reduce work and saving incentives, while consumption taxes can discourage spending, which is why tax design trades off efficiency against equity.
Example
A worker earns 9,000 in income tax plus $3,000 in payroll tax. The government uses this revenue to fund schools, roads, and defense, while the tax rates shape how much the worker keeps from each extra hour worked.
Taxation is confused with government revenue as a whole and with the tax rate. Total tax revenue equals the tax base times the rate, so revenue can rise even as rates fall if the base grows. Also, who legally pays a tax (statutory incidence) often differs from who really bears it (economic incidence).