Why was the decision made to make padding apply outside of the width of a 'box', rather than inside, which would seem to make more sense?

It makes sense in some situations, but not in others. For example, when a child element is set to width: 100%, I don't think it should cover the padding of its parent. The box-sizing property in CSS3 addresses this issue. Ideally, the issue should have been addressed earlier, though.

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