Think it widely, at national level.
Government earns its revenue in form of taxation.
It uses it to improve well-beings, social security infrastructure etc.
That's the reason taxation will influence residents' daily life.
For your second question,
if entity has to pay heavy tax, it has less cash to distribute as salary, hourly pay check etc.
You may call it indirect influence.
That's pretty straightforward, isn't it?
Thanks.