1) Tax is the amount of money required by the government to financially support the economy. The two main types of taxes are direct taxes and indirect taxes. Direct taxes are levied on an individual's income, property, or wealth (e.g., income tax and corporate tax). Direct taxes tend to be progressive, efficient and flexible. However, some will also argue that it encourages tax evasion, discourages work, creates tax havens that lead to leakages, and is unpopular with the electorate. Rather, indirect taxes are levied on goods and services, thus indirectly affecting citizens (e.g. VAT and council tax). It's effective because it lets people decide whether to pay or not. However, taxes like VAT are regressive towards citizens. The main purpose of a government imposing taxes is to raise revenue for public spending. Public goods are goods that are given collectively because they are both non-excludable and non-rivalrous (e.g., fresh air, national defense, street lighting, etc.). Additionally, meritorious goods are goods that are necessary but are under-provided or costly (e.g., education, health, etc.). These goods constitute public expenditure and are financed by tax revenues. These revenues were also used, thanks to austerity measures, to reduce deficits. An example would be in 2010, when the Conservative government increased VAT using austerity measures in order to “accelerate the elimination of the UK budget deficit”. If there were no taxes, then the government would have to increase its borrowing, thereby increasing the public sector's net cash requirement, the term used for the budget deficit. Governments also impose taxes to control market failures. In an economy, there are negative externalities, or a consequence of a particular economic activity... middle of paper ......i benefit the poorest individuals in the economy. Again, like supply-side policy, lower rates will result in lower costs of factors of production. This will allow businesses to expand their activities, invest more and create jobs. This will result in higher income and tax revenues, even when tax rates are lower. According to HMRC figures, John Redwood highlighted that reducing the top tax rate to 45% actually increased tax revenue by £9 billion in 2014 (Wheeler, 2014). Another example would be the United States in 1980, when the Reagan administration decided to cut taxes from 70% to 28%. The method was successful, ending the United States from stagflation. Therefore, tax cuts will increase revenue rather than decrease it. In conclusion, reducing taxes will bring both benefits and harms. Governments should consider both and thus decide effectively.