Abstract
In reality, a government funds its own expenditure mainly by taxation, borrowings, and fees and charges. Additional sources of government revenue include seigniorage, natural resource revenues, and foreign aid and grants. The specific mix of revenue sources and their relative importance varies from one government to another based on factors such as the country’s economic structure, tax policies, natural resources, and external financial assistance. Suppose a government ends taxing and funds its own expenditure purely by borrowings. In that case, it may lead to an inefficient market, a turbulent economy, social and economic inequality, and reduced social productivity and welfare.
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