Taxes and morale are two important concepts to understand. Without money your territory will cease to function, and with low morale you will experience bad effects.

Morale Determining Formula: 52 + ((30 - (0.7*taxrate))*employment%) + Laws Bonus/Penalty% + Attack Bonus%

Morale
(Basics)
Under 30% - Your civilians revolt against you and your territory is effectively destroyed.
30% - 50% - Negative effects, More information needed.
50% - 80% - Your territory has ordinary morale and there is no positive or negative gain.
Over 80% - Positive effects increase with each % over. Income increases at a rate of 0.5% per 1% of morale. Over 95% morale, bootcamp and university graduation increase by 50%,
factory production increases up to 25% on a linear scale. Military strength also increases up to a maximum of 10% in offence and defence.

(Gaining Morale)
Morale is increased within your territory by lowering taxes, winning battles, successfully dealing with hostage situations and passing certain laws. Lowering taxes increases morale at a rate of 1-2% per % of tax. Winning battles can increase morale up to a cap of 20%. The following laws increase morale:

Free Speech: 5% bonus to morale, 7% penalty to intel defence.
Minumum Wage: 5% bonus to morale. 5% bonus to income.
Nuclear Pact: 15% bonus to production. 10% bonus to morale. 10% bonus to income. +25% to maximum platoons. Cannot produce nukes.
Labour Unions: 8% bonus to morale. 4% penalty to production. 2% penalty to income.

(Losing Morale)
As it can be gained, morale can be taken away. Losing battles and taking intelligence attacks damage morale, though this is only temporary and can be redeemed through winning battles and simply using a number of turns. Terrorist attacks lower morale by 4%, whilst having your leader assassinated lowers morale by 12%. Some laws also damage morale:

Censorship: 5% penalty to morale, 7% bonus to intel defence.
Draft: Increase bootcamp training rate by 50%, +25% to maximum platoons, reduces morale by 5%.
Conscription: Increase bootcamp training rate by 75%, +50% to maximum platoons, reduces morale by 10%.


Taxes & Income
Income is calculated every time a turn is used and is based on the number of employed civilians available, as well as things like upkeep costs on buildings and units. Taxes can be set at between 0 and 50% by the player, though 45% is the maximum achievable before any morale increases so it is a good idea to regularly check that your morale is stable enough for a high tax rate. Remember that 50% taxes and 49% morale will generate less money than 45% taxes and 51% morale. As with morale there are a number of laws which benefit (or damage) income:

(Increase)
Minimum Wage: 5% bonus to morale. 5% bonus to income.
Nuclear Pact: 15% bonus to production. 10% bonus to morale. 10% bonus to income. +25% to maximum platoons. Cannot produce nukes.
Free Trade: 10% bonus to income
Women's Rights: Increases the percentage of uneducated civilians in your population that can work in commercial zones from 60% to 100%, +15% to maximum platoons.

Note that Women's rights has an indirect effect but means that one can earn more money with the same number of uneducated civilians.

(Decrease)
Labour Unions: 8% bonus to morale. 4% penalty to production. 2% penalty to income.
CI Fund: 5% bonus to intel offense and defense. 10% penalty to income.

Note that Russian players do not suffer the income penalty attributed to CI Fund.