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Taxation is the primary mechanism through which governments finance public expenditure, but its economic impact extends far beyond raising revenue. In macroeconomics, taxes are a crucial fiscal policy lever used to manage aggregate demand and control inflation. On a microeconomic level, taxation alters incentives. It can be used to correct market failures, such as taxing demerit goods or pollution, and to redistribute income for greater equity. The ultimate challenge for policymakers is balancing revenue needs with fairness and economic efficiency.