Market Failure - ECONOMICS?

[Smile :D]

I've been given the following question:

"What market failure is the tax attempting to address?
Explain how it reduces the market failure":

The taxes are: Income tax/national insurance/VAT/excise duties/corporation tax/council tax/inheritance tax

I know the definition of a market failure, but I don't understand how can you tell what the market failure is?

Thanks

[Phoenix]

Was this given to you by a teacher?

Because this question really doesn't make much sense.

Taxation does not exist to address market failures. Taxation exists as a form of revenue for a governing entity so that is has sufficient funding to operate. So the primary purpose of these taxes, (income tax / value added tax / inheritance tax / excise tax / corporation tax / council tax), is not to fundamentally address market failures, it's to fund the government. Addressing market failures is the purpose of regulation.

National insurance is slightly different from the rest of these in that it's not a tax, per se. It's a mandatory contribution system paid by employers and employees to provide what is, in effect, social security. The contributions that are made are paid back to the individuals that made them when one of the following occur: death, retirement, unemployment, maternity and disability. National insurance addresses the issue of individuals not personally saving for these eventualities themselves.

Now I can tell you what your teacher wants to hear, but they're wrong.

- Income tax addresses income disparity by using progressive taxation, wherein the rich pay more in taxes than the poor.

- Excise taxes, typically called sin taxes, are used to address consumption and behavior that the government finds morally objectionable.

- Inheritance tax addresses accumulation of wealth at the top end of the economic scale.

- Value added tax addresses the problem of tax collection by having the producers and providers of goods and services collect the tax who then give it to the government.

- Corporate taxes don't really address anything, other than to tax corporate entities that operate within the country.

- Council tax, which replaced the community charge, is a local tax designed to fund the local government by taxing property.

Again, your teacher is misusing the term "market failure", but just nod your head and agree with the teacher when they say it, and greetings from America.