ABSTRACT
The chapter begins with a brief summary of the rationale and forms of taxation, and then goes on to the management of government expenditure. It describes the principles and process of budget preparation, budget approval, budget execution and the financial management controls, including the key role of external audit. Rich countries can and often do have loose and incoherent budgets and, conversely, a poor country can manage its public finances well. When the top tax rates on income become too high, they reduce individual incentives to work harder and innovate, and raise the incentives to find ways to avoid the tax – including moving out of the country. Taxes can be levied on property, on income, or on transactions. Property taxes include mainly real estate taxes – the main source of revenue for local government in the United States – and other property taxes.
