Sale of new bonds) and utilization of printed money. Where G stands for Government investment, T for AM for money, AB for borrowing and taxation revenue created. When G exceeds T, we’ve a spending budget shortfall. Budget constraint equation says, that spending budget shortfall has to be financed by borrowing by the Government pr by utilizing printed money .what’s Tax? A tax is a mandatory payment levied on businesses or the people to meet the cost incurred on conferring advantages that are typical upon a country’s individuals. A tax is a compulsory repayment and nobody can refuse to pay it.
Proceeds from taxes are employed for functions of the State or advantages. Put simply, there’s no direct quid pro quo involved with the payment of a tax. This means that an individual can’t expect or demand that the authorities must render him a service in return for the taxation. This does not imply that Authorities does nothing for the people. In fact Authorities spends the tax money for the common or general benefits of all the people instead of conferring any advantage on a tax payer that is specific. To quote Taussig, a tax’s gist, as distinguished by Government from the charges is the absence of any quid pro quo between the authority and the tax payers.
Tax should be cautiously distinguished from a fee. Fee is also compulsory repayment made by an individual who receives in return a certain benefit or service from the Government. For paying fee on a TV or radio, an individual gets the advantages of programmes relayed by the Authorities on tv or radio. Similarly, students who pay the education fee in colleges and schools, obtain the advantages of teaching arranged by the Government. The amount of fee would be always less than those cost of service rendered by those Authorities in return and for that reason covers only a part of those cost of service rendered.
Therefore, even in case of fee, there’s a general public interest or common advantage of the service rendered by the Government. In this instance, the Authorities undertakes a service for the common advantages of those citizens and obtains a fee by people who avail of the service to cover a part of those cost of service rendered. The taxes have been variously classified. Taxes can be direct or indirect, they can be progressive, proportional or regressive, and indirect taxation can be particular or ad valorem.