What Does Taxation Mean in Economics?

Taxes are a topic of contention for most taxpayers, regardless of country of origin. The economic concept, as well as public disdain for taxes, dates back to Greek, Roman and Egyptian history. In terms of funding public works, taxes are, and always have been, a necessity. An entire area of economic study is devoted to taxation and public finance.

What Taxes Are

Taxation, in terms of economics, means the funding of public works through mandatory citizen contributions. All societies need some form of public infrastructure, including roads and bridges, health care, law enforcement and education, to name a few. To fund such public necessities, governments collect taxes. Taxation is the primary source of revenue for most government bodies. Ideally, each citizen within a society contributes a fair and equal portion of their earnings to help fund needed public works.

Taxation as an Area of Study

In terms of the study of economics, taxation encompasses an entire specialty in and of itself. Economists and other financial specialists study the effects of taxation and various tax rates on the overall economy of a community or country. High taxes can stiffle economic growth, while low tax rates can create deficits or an unstable infrastructure. Throughout history, the rate at which citizenry is taxed has had a great effect on its economy, as well as society's acceptance of government authority.

The History of Taxation

Taxation, as an economic concept, has been around since ancient times. Greek, Roman and Egyptian societies instilled different forms of taxation, with varying degrees of success and public acceptance. Taxes on cooking oil in ancient Egypt, for example, were restrictive and invasive, with scribes auditing household use of cooking oil to ensure enough tax revenues. Alternatively, Greeks initiated temporary taxes to generate revenues during wartimes, as well as permanent taxes on foreigners. Romans taxed imports and exports. Each of these provided the same benefit and carried similar meaning as modern tax systems. Taxes provide the revenue needed to fund public roads, pay for law enforcement, provide education, fund sanitation projects and similar public needs.