In your opinion do taxes lead to efficiency or inefficiencyS

In your opinion, do taxes lead to efficiency or inefficiency?

Solution

Taxes are additional charges applied on using or producing any particular good or service.

E.g. taxes on pollution, taxes on producing tobacco related goods, income taxes, service taxes etc.

These taxes act as a source of revenue generation for the government. Government collects taxes and then uses them for the welfare of the general public by investing them in infrastructure, education, health etc.

Although taxes lead to inefficiency, as it creates deadweight loss, some taxes are good and necessary. E.g. tax on cigarettes or taxes on incomes above a certain level are good for the economy, socially as well as monetarily.

Although certain taxes are unrequired and only add to the burden of the tax payer or consumers, like tax on imports, service charges.

Since every coin has two sides, similarly taxes have both good as well as bad side. It is upto the government to decide the tax levels and what goods to tax, if not all.