ABSTRACT
In this chapter, the authors look at taxes and tax policy. Taxes provide the revenue needed for important public services such as social security, health care, national defense, and education. In most countries, the majority of tax revenues come from other taxes, such as taxes on income or property. Political leaders have used tax policy to promote their agendas by initiating various tax reforms: decreasing or increasing tax rates, changing the definition of taxable income, creating new taxes on specific products, and so forth. An excise tax is just one type of tax. While increasing tax progressivity can reduce inequality, analysis by the Organisation for Economic Cooperation and Development finds that the inequality-reducing impact of tax systems in rich countries has generally been declining in recent decades. An increase in state taxes on gasoline affects low-income households more than high-income households, measured as a percentage of income.
