This chapter outlines changes in levels of public expenditures and their current structure in order to provide a background for the tax analysis that follows. It sets out the stylized facts regarding tax systems in transition and relates them to the characteristics of public expenditures noted. The chapter appeals to comparative evidence to suggest the combinations in which different tax instruments might be used to finance public expenditure without introducing serious distortions in the private sector. It reviews the impact of tax systems on the investment climate in transition economies. The chapter contains a brief review of outstanding issues in the reform of tax administration. It considers foreign direct investment. The chapter concludes by bringing together the questions raised by the whole analysis. It sets tax systems in transition countries in comparative international perspective. The high-income OECD countries are on average closer to the income tax comer and towards the axis AB compared to the transition countries.