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to the public coffers. This principle supports progressive taxation, where tax rates escalate with an individual's income or wealth. The rationale for vertical equity involves recognizing different capacities and needs among the population, which should influence their tax contributions. However, like horizontal equity, vertical equity also encounters practical difficulties. For example, one difficulty with using vertical equity as a guide to public policy is in measurement. Attempting to determine vertical equity also raises the serious problems discussed earlier that are associated with interpersonal comparisons of utility.
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interpersonal comparisons of utility, which are inherently complex and controversial. Public finance in theory and practice highlights this difficulty: "Economists find it difficult to formulate an acceptable definition of distributional equity because it would require interpersonal comparisons of utility." In practice, it may prove impossible to equalise choices without seriously impeding social objectives in other areas, such as the attainment of efficiency or the preservation of liberty. This complexity is a significant barrier to forming a consensus on what constitutes equitable outcomes in economic policy.
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is similar, at least within a given range of incomes. This principle underpins many tax systems, advocating that those with comparable incomes should incur similar tax burdens. However, the practical implementation of horizontal equity is fraught with challenges, as defining what constitutes similar economic situations can be highly subjective and complex. Much of the complexity in the federal income tax arises from attempts to define equal economic situations for purposes of horizontal equity.
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middle-income countries increased inequality in recent years, it is important to note that middle classes and—to a lesser extent—poorer-income groups seem to be getting an increasing share of income in recent years. To some, this advance is still vulnerable and needs to be quickly accelerated in the 21st century
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The role of equity in taxation is pivotal. An equitable tax system aims to distribute the financial burden fairly across different income groups, ensuring that everyone contributes their fair share towards public services. The principles of horizontal and vertical equity are often discussed regarding
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Another axiom is Sen's weak equity axiom, which states: „Let person i have a lower level of welfare than person j for each level of individual income. Then in distributing a given total of income among n individuals including i and j, the optimal solution must give i a higher level of income than j.“
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Among these, Hammond’s equity principle is notable. It suggests that a progressive transfer—redistributing income from richer to poorer individuals without altering their relative positions in terms of utility—enhances overall welfare. This principle is grounded in the belief that "an increase in one
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In addition, Equity may also refer to inter-nation equity. As a theory, inter-nation equity is concerned with the allocation of national gain and loss in the international context and aims to ensure that each country receives an equitable share of tax revenues from cross-border transactions. The tax
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A second and even more challenging concept of equity is vertical equity. Vertical equity means treating people differently according to the differences in their income, wealth, or other measure of need or ability to pay. It is typically advocating that those who are better off should contribute more
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The concept of horizontal equity means treating people alike if they are in the same or similar economic situations—making them pay the same taxes and/or providing them with the same public services. Implicit in the notion of horizontal equity is an assumption that people’s capacity to enjoy income
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promote a more inclusive and just society. Equity is a central issue in public sector economics and in public policy. It is at the heart of almost all economics policy debates, which underscores the integral role that equity plays in shaping public decisions that impact overall societal welfare.
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Equity in economics refers to a condition of fairness where the economic processes and their outcomes do not unduly favor or disadvantage any particular group or individual. This sense of fairness, or economic justice, attempts to balance economic disparities among different societal segments to
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Defining equity presents inherent challenges due to its subjective nature, which depends heavily on societal values and individual perceptions of what is considered fair. Economists often struggle to establish a universally accepted definition of distributional equity because it involves making
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According to Peter
Corning, there are three distinct categories of substantive fairness (equality, equity, and reciprocity) that must be combined and balanced in order to achieve a truly fair society. Inequality and inequities have significantly increased in recent decades. But while most of
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Equity axioms are theoretical constructs that provide frameworks for understanding and implementing fairness in economic policies. While there are many variants of equity principles, they could be divided in two broad categories, namely, procedural and consequentialist.
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person's utility matched with a decrease in another person's utility that does not alter their respective positions on the utility scale – what we refer to as a
Hammond progressive transfer – constitutes a welfare improvement.“
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Equality: On Sen's Weak Equity Axiom Author: James
Griffin Source: Mind , Apr., 1981, New Series, Vol. 90, No. 358 (Apr., 1981), pp. 280-286 Published by: Oxford University Press on behalf of the Mind Association
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policy principle of inter-nation equity has been an important consideration in the debate on the division of taxing rights between source and residence countries.
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usually refers to the idea that people with a greater ability to pay taxes should pay more. If the rich pay more in proportion to their income, this is known as a
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This axiom prioritizes the needs of the most disadvantaged when allocating resources, ensuring that equity considerations directly influence economic outcomes.
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Musgrave (1987), pp. 1057–58. Burgers, Irene JJ, and I. J. Valderrama. "Fairness: A dire international tax standard with no meaning". Intertax 45 (2017): 767.
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Ravallion, M. (2009). “The
Developing World’s Bulging (but Vulnerable) Middle Class.” Policy Research Working Paper 4816. Washington, D.C.: World Bank.
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314:(SP) achieves a more complex variant called proportional equitability. For more than two people, a division cannot always both be equitable and
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Equity looks at the distribution of capital, goods, and access to services throughout an economy and is often measured using tools such as the
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Nicolas Gravel, Brice
Magdalou, Patrick Moyes. Hammond’s Equity Principle and the Measurement of Ordinal Inequalities. 2017. halshs-01430838
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OECD (2014), “Fundamental principles of taxation”, in
Addressing the Tax Challenges of the Digital Economy, OECD Publishing, Paris. DOI:
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is the idea that people with a similar ability to pay taxes should pay the same or similar amounts. It is related to the concept of
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Xavier
Calsamiglia and Alan Kirman (1993). "A Unique Informationally Efficient and Decentralized Mechanism with Fair Outcomes",
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Dubey, Ram Sewak (November 2016). "On construction of social welfare orders satisfying
Hammond equity and Weak Pareto axioms".
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by Steven J. Brams, Michael A. Jones, and
Christian Klamler in the Notices of the American Mathematical Society December 2006.
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or the idea that the tax system should not discriminate between similar things or people, or unduly distort behavior.
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in overall evaluation of social welfare. Although 'equity' has broader uses, it may be posed as a counterpart to
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Finance in Theory and Practice Second edition (1st ed.). Routledge, p. 73
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Ulbrich, H. (2011). Public Finance in Theory and Practice Second edition (1st ed.). Routledge, p. 73
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Ulbrich, H. (2011). Public Finance in Theory and Practice Second edition (1st ed.). Routledge, p. 72
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Ulbrich, H. (2011). Public Finance in Theory and Practice Second edition (1st ed.). Routledge, p. 72
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Ulbrich, H. (2011). Public Finance in Theory and Practice Second edition (1st ed.). Routledge, p. 70
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Ulbrich, H. (2011). Public Finance in Theory and Practice Second edition (1st ed.). Routledge, p. 71
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LE GRAND, J. (1984). Equity as an Economic Objective. Journal of Applied Philosophy, 1(1), 39–51.
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means every person's subjective valuation of their own share of some goods is the same. The
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Equity and Choice: An Essay in Economics and Applied Philosophy
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The Theory of Public Finance: A Study in Political Economy
629:(1995). "Need: The Idea Won't Do — But We Still Need It",
281:; if they pay an increasing proportion, this is termed a
397:"Social Justice: Is It in Our Nature (and Our Future)?"
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World Development Report 2006: Equity and Development
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658:The New Palgrave: A Dictionary of Economics
567:https://doi.org/10.1787/9789264218789-5-en
120:Learn how and when to remove this message
745:The New Palgrave Dictionary of Economics
644:The New Palgrave Dictionary of Economics
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69:"Equity" economics
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196:in yielding a "good"
176:Definitions of Equity
799:Basic Income Studies
328:Distributive justice
54:improve this article
703:Richard A. Musgrave
594:Anthony B. Atkinson
348:Justice (economics)
194:economic inequality
190:economic efficiency
765:2007-10-18 at the
733:Joseph E. Stiglitz
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676:Justice and Equity
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674:( 2000).
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