Importance Of Government Revenue

Government revenue is based on different sources of collection to provide services to the public. These payments to the government are described as involuntary, which an individual can provide through: income taxes, general sales taxes, property taxes, corporate taxes, etc. These types of taxes are part of the federal and state governments. Each level of government has distinct taxes that are considerably more important than others. At the state level the two most essential revenues are the income and general sales tax. These sources of revenue mainly aid to fund education and health care. Although these tax maybe a huge part of state revenue, not all states rely on the same sources of income. There are those who argue that states should mainly use either a general sales tax or income tax. Economics can better explain this as the income substitution effect which helps us understand the connection between taxes more efficiently. In a journal by George K. Davis Income and Substitution Effects for Mean- Preserving Spreads …show more content…
The goal is to maximize government revenue while also not creating a negative economic condition through low consumer spending. Any tax levied on the public shouldn’t create a recession. Therefore if the income effect is great in an area it is greater than the substitution effect. Government officials should rely on revenue from sales tax. This is because a great income effect would mean that consumer spending would be more likely to decrease based on a decrease in income. On the other hand if the substitution effect is greater in said area then government would want to rely on income tax. This is because consumers in this situation would be more sensitive to these specific price changes. The overall goal would be to maximize tax revenue while promoting more demand from