Tax

===Increased economic welfare===

====Government spending====
The purpose of taxation is to provide for [[government spending]] without [[inflation]]. The provision of [[Public good (economics)|public goods]] such as [[road]]s and other [[infrastructure]], [[school]]s, a [[social safety net]], public [[health system]]s, national defense, [[law enforcement]], and a [[Judiciary|courts system]] increases the [[Welfare definition of economics|economic welfare]] of society if the benefit outweighs the costs involved.

====Pigovian====
The existence of a tax can ''increase'' economic efficiency in some cases. If there is a [[negative externality]] associated with a good (meaning that it has negative effects not felt by the consumer) then a free market will trade too much of that good. By taxing the good, the government can raise revenue to address specific problems while increasing overall welfare.

The goal is to tax people when they are creating societal costs in addition to their personal costs. By taxing goods with negative externalities, the government attempts to increase economic efficiency while raising revenues.

This type of tax is called a [[Pigovian tax]], after economist [[Arthur Cecil Pigou|Arthur Pigou]] who wrote about it in his 1920 book "The Economics of Welfare".<ref>{{Cite news|last=Frank|first=Robert H.|date=5 January 2013|title=Heads, You Win. Tails, You Win, Too.|language=en-US|work=The New York Times|url=https://www.nytimes.com/2013/01/06/business/pigovian-taxes-may-offer-economic-hope.html |url-access=registration |access-date=10 September 2021|issn=0362-4331}}</ref>

Pigovian taxes might target the undesirable production of [[greenhouse gas]]es which cause [[climate change]] (namely a [[carbon tax]]), polluting fuels (such as [[petrol]]), water or air pollution (namely an [[ecotax]]), goods which incur public healthcare costs (such as [[Alcoholic drink|alcohol]] or [[tobacco]]), and excess demand of certain public goods (such as [[congestion charging|traffic congestion pricing]]). The idea is to aim taxes at people that cause an above-average amount of societal [[harm]] so the [[free market]] incorporates all [[cost]]s as opposed to only personal costs, with the benefit of lowering the overall tax burden for people who cause less societal harm.

====Reduced inequality====
Progressive taxation generally reduces [[economic inequality]], even when the tax revenue is not [[Redistribution of income and wealth|redistributed]] from higher-income individuals to lower-income individuals.<ref>{{Cite web|title=How do taxes affect income inequality?|url=https://www.taxpolicycenter.org/briefing-book/how-do-taxes-affect-income-inequality |date=May 2020 |access-date=22 September 2021|website=Tax Policy Center|language=en}}</ref><ref>{{Cite book|url=https://www.oecd-ilibrary.org/economics/economic-policy-reforms-2012_growth-2012-en|title=Economic Policy Reforms 2012: Going for Growth|date=24 February 2012|publisher=OECD|isbn=978-92-64-16825-1|language=en|doi=10.1787/growth-2012-en |url-status=live |archive-url=https://web.archive.org/web/20231018164559/https://www.oecd-ilibrary.org/economics/economic-policy-reforms-2012_growth-2012-en |archive-date= 18 October 2023 }}</ref> However, in a highly specific condition, progressive taxation increases [[economic inequality]] when lower-income individuals consume [[goods]] and [[Service (economics)|services]] produced by higher-income individuals, who in turn consume only from other higher-income individuals ([[trickle-up effect]]).<ref>{{Cite web|title=Could More Progressive Taxes Increase Income Inequality? |url=https://www.stlouisfed.org/on-the-economy/2020/may/could-more-progressive-taxes-increase-income-inequality|access-date=22 September 2021|website=St. Louis Fed |date=19 May 2020 |first1=Laura |last1=Jackson |first2=Christopher |last2=Otrok |first3=Michael T. |last3=Owyang }}</ref>