The overall level of taxes may be chosen in an attempt to stabilize the level of employment, prices or the balance of payments through the fiscal policy.

Governments redistribute resources between individuals or classes in the population by varying the tax structure.

Taxes may also be selected for their allocative effects. It is the objective of taxation to minimize costs to society and perhaps encourage popular activities like savings or investment as well as discourage activities that are considered ‘harmful’ and luxurious such as gambling, smoking and drinking. Taxes may also serve as an incentive or disincentive for economic activity. Tax incentives such as subsidies, tax exemptions, rebates and tax holidays affect the level of competition of businesses.