As the share of public expenditure in overall national income has risen, so has the strain on traditional sources of tax revenue. The original stalwarts, property and capital taxes, have shrunk in importance and been replaced by increasing reliance on income taxes, on social security contributions, and on sales taxes of various kinds. The balance between these taxes varies considerably among countries, which make differing decisions about the appropriate balance between taxes.

Each of the main types of tax is perceived by taxpayers in different ways. Social security taxes have everywhere risen in importance, partly as a result of the growth of social security expenditures but also because their association with the benefits received, however loose, reduces the unpopularity of increases. Income taxes tended to increase in many countries until the mid-1970s—even longer in the United States—because the exemptions and rate schedules were not fully indexed to inflation. This was later reversed, however, by indexation or explicit tax cuts.

Sales taxes are less obvious, as they change the price of goods a consumer buys rather than his income. At times of high inflation, it is often hard for taxpayers to identify what proportion of the price rise is actually caused by increased taxation, which has led to increasing reliance on this kind of tax. But sales taxes too have their limits; when the proportion of tax on a good is sufficiently high, consumption declines, and there is political pressure from consumers and industry to reduce the tax increases. Governments have been reluctant to increase indirect taxes significantly as the control of inflation has become a major policy goal.

Taxation is not the only means by which a government can raise revenue. It can charge for the services it provides, or it can undertake profitable commercial activities. This is done to some degree by all Western governments, although the revenue raised is much less than that raised by taxation.

Charging for public services faces a number of difficulties. Perhaps the most important is collection costs. Public services such as roads and parks are difficult to charge for, because they are closely integrated with the community. Some countries have tolls on major highways, and a few parks have admission charges, but in the main these are supplied free of charge. Other goods, such as museums and art galleries, are easier to charge for, but attempts at charging often generate more political opposition than can be justified by the limited revenue that could be raised.

A second consideration in deciding on charges is that it is rarely economically efficient to charge for public goods. Parks and roads, for example, have high initial costs but relatively low costs per user. Imposing a charge will mean that fewer people use them, and unless congestion is sufficiently severe to reduce others’ enjoyment, less overall welfare will be generated.

In many countries, particularly the United Kingdom, many industries are publicly owned, and these include highly profitable industries such as those supplying gas or electricity. The profits from these industries provide revenue. It is an open question, however, whether they provide as much revenue as would the assets employed if these were invested in private sector companies. Other publicly owned undertakings make substantial losses, and this reduces the net value of any surplus. Few countries rely heavily on public sector industries for revenue, the nationalization of specific industries being usually justified on other grounds.