Tax Revenue

Tax revenue is the main way governments pay for public services such as healthcare, education, defence, infrastructure and welfare. It is often reported as an amount in currency and as a percentage of GDP, which allows comparisons between countries and over time.

Tax revenues differ greatly between countries. Some countries collect over 40% of GDP in taxes, funding extensive public services and social protection, while others collect much less.

Tax revenue changes with the economy. During economic expansions, incomes, profits and spending rise, so tax revenues tend to increase. During recessions, revenues fall, even if tax rates stay the same, which is one reason budget deficits widen in downturns.

Governments can increase tax revenue by raising tax rates, broadening the tax base, reducing tax evasion and avoidance, or by encouraging economic growth. However, very high tax rates may reduce the incentive to work, invest or report income honestly, which can limit how much additional revenue higher rates actually raise.