Fiscal policy and taxation (Sources of Government Revenue)

Fiscal policy is how a government uses spending and taxation to influence the economy, managing growth, employment, and price stability. It has two main tools: government spending and taxation.

Taxation as a revenue source works like this:

Direct taxes — levied on income or profit (e.g., personal income tax, company income tax, capital gains tax). The taxpayer bears the burden directly.

Indirect taxes — levied on goods and services (e.g., VAT, customs duties, excise duties). Cost is passed to consumers through prices.