The Impact of the Taxation System on Income Inequality and Economic Stability in the Context of Modern Development

Abstract

Taxation plays a strategic role in supporting a nation’s economic and social development through its four primary functions: budgetary, regulatory, stabilization, and income redistribution. As an instrument of fiscal policy, taxation serves not only as a source of government revenue but also as a mechanism to promote equitable welfare distribution. In the context of globalization and the digital economy, tax systems face significant challenges related to the digitalization of economic activities and the emergence of cross-border entities that are difficult to tax under traditional frameworks. This study aims to examine the role of taxation in fostering economic and social development while analyzing the challenges of its implementation in the digital era. Using a descriptive qualitative approach based on recent scholarly literature, the findings indicate that taxation functions as a vital instrument for driving sustainable economic growth and achieving social justice. Therefore, comprehensive digital tax policy reform is required to ensure effectiveness, transparency, and fairness within the global taxation framework, thereby strengthening fiscal capacity and promoting inclusive development in the modern economy.