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Why does the government need taxes? Answer: The government needs tax because it needs money to pay for hospitals,schools,and community service. In order for the people to have those services, they contribute to â¦ the fund. tax goes towards government spending on public services such as: healthcare, education, public transport etc...
Some economists would argue increasing government spending through higher taxes would lead to a more inefficient allocation of resources as governments tend to be less effective in spending money. Another consideration is that an economy may grow at 2.5% a year. If there is higher government spending, this growth rate continues. But, the growth is not due to the rising government spending. The government spending just fails to change the growth rate.