It is commonly believed that death and taxes are two things that you cannot avoid as long as you are alive. Whether they are in the form of income tax or value added tax on your bottle of soda, taxes are a way of life in all places in the world. This is obviously the most common reason that we know for taxation. Governments all around the world need to run and they must get money from somewhere. Depending on the type of government, the proportion of taxation as a source of revenue will differ. For highly capitalistic societies where governments do not involve themselves in business, taxation forms a huge proportion of government revenue. On the other hand, countries where governments run businesses, especially those that deal with natural resources such as oil and minerals, revenue from taxation may not form a big proportion of the government revenue.

Apart from being a source of revenue for the government, taxation is also used by administrations to discourage the consumption or production of certain goods and services. This is usually done through progressive income taxes  and taxation of luxury goods. The funds received from here are channeled back to the economy through subsidies and loans to the poor. The effectiveness of such schemes depends on a lot of factors including the level of transparency and accountability in government, the sustainability of the project and the existing political environment.