Coercion

• Traditionally, governments used coercive force to take from the population what they would never receive voluntarily. Taxation seemed more like tribute or protection money in the name of the common good, which governments claimed they represented. However, more recently, governments use more nuanced policy tools to enforce laws and regulate the economy.
  
  

Taxes as Tools

• Tax credits and rebates are a powerful tool. These are means of using the tax code in a negative way; the state will not collect if and only if you engage in some behavior the state wants. The Chinese government, for example, has made it clear since the early 1990s that any investor who places his money in the undeveloped and mountainous western regions of the country will receive various tax breaks as a result. A credit is where the state does not collect the tax it normally would, while a rebate is a check the government sends you to compensate for taxes already paid.
  
  

Constituencies

• In terms of government spending, a school of thought holds to the decentralized concept of state policy tools. Political economy writers Lester Salmon and Odus Elliot posit a model of expenditure tools. For each set of expenditures---e.g. health care, armaments or foreign aid---there develops a constituency that becomes dependent on the money. Older Americans become dependent on Medicaid, while Boeing gets used to large government contracts for fighter jets. Regardless of the issue area, government then has a set of tools at its disposal in the form of a constituency that has a vested interest in the money. In this way, the government in question can trade loyalty, contributions and support for financial support.
  
  

Subsidies and Support

• Tools are methods. Subsidies and support are methods whose complexity and subtly is important. For example, as political science Professor Lester Salmon writes in his introduction to the book, "The Tools of Government," the use of export subsidies is a fairly complex expenditure tool. An export subsidy is a "catch all" term that refers to all positive government action that assists the competitiveness of an exporter on global markets. In Europe, Airbus is famous for receiving substantial tax breaks to make their products cheaper on global markets. This can also reference the action of the American Export-Import Bank, whose sole project is to guarantee the exports of American products. If an exporter buys a policy from the bank, the bank will forward any receipts to the firm. This is done even if the foreign buyer does not pay or declares bankruptcy. This is another public expenditure tool supporting exporters.