Final answer:
Tax rates can change to ensure sufficient state revenue, to stabilize the economy, and as part of fiscal policy decisions. High rates can discourage economic activity, while lower rates may stimulate growth and potentially increase tax revenue, as per the Laffer Curve.
Step-by-step explanation:
One reason tax rates can change is that they might increase to ensure the state has enough revenue to operate and provide services. Governments must find a balance between generating necessary income without discouraging desirable behaviors such as consumption or investment, which could slow economic growth. For instance, when tax rates are excessively high, they can deter citizens from engaging in productive activities, negatively impacting the economy.
Taxation is a tool in fiscal policy to stabilize the economy. During times of rapid economic growth, increasing taxes can help cool down the economy, while decreasing taxes might stimulate growth by leaving more money for consumption and investment. In the concept introduced by Economist Arthur Laffer, the 'Laffer Curve' posits that lowering tax rates can sometimes lead to an increase in tax revenue because it can encourage greater economic activity and thus expand the tax base.
Moreover, changing tax rates can also be a political decision taken by governments, such as when seeking to reduce a deficit by increasing revenue through higher taxes or, conversely, when aiming to spur economic activity by lowering taxes.