The Tax and Financial Environment

The tax and financial environment affects many aspects of the business world. Federal taxes, for example, are the largest source of revenue for most countries, and state and local taxes follow. Additionally, the external business environment contains the political, legal, demographic, and technological sectors. Managers need to understand the impact of these sectors and how they affect the business environment. This article will discuss some of these issues. Let’s take a look at some of the most important factors that affect the business environment.

Sustainable tax revenues are closely related to fiscal sustainability. Sustainable tax revenues come from tax bases that do not erode, thereby securing the funding for current and future spending. In addition, the revenue aspect of overall taxation schemes must be studied, particularly in light of climate change and the outlook of emissions trading schemes. For example, energy taxation could result in dramatic revenue losses due to changes in travel habits. In addition, taxes on carbon dioxide emissions and water can have an impact on the economic environment.

In addition to asset allocation and risk-taking, the tax and financial environment also affects the behavior of individuals. A substantial literature on this topic has been published, with empirical evidence pointing to an important role of taxation in influencing household asset allocation, asset sales, and risk sharing. However, while the behavioral effects of taxation are important, quantifying their costs and benefits is difficult. While there are a number of econometric measures of these effects, few are sufficiently convincing to calculate the costs of these distortions.

A significant research priority is the development of models of household portfolio behavior. Such models can be used to assess the impact of a particular tax policy on household portfolio choices. This type of analysis can help assess the welfare impact of a tax policy. So, the study of household portfolio holdings needs to be conducted systematically. And it must be based on the latest research. Once these models are developed, they can be used to assess the impact of taxation on household assets.

The tax and financial environment must be future-proofed as the decarbonisation of the economy will erode tax bases. Energy fuels are currently the largest source of revenue in the context of environmental taxation. In this context, a shift in taxation from labour to the environment must be aligned. A new survey by the European Commission in 2020 has outlined principles for fair tax systems. And it suggests that taxation on financial transactions, wealth, and land should be part of any future reforms.

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