曼昆微观经济学chapter12ccjhg.pptVIP

TAXES AND EQUITY Questions to answer to determine equity How should the burden of taxes be divided among the population? How do we evaluate whether a tax system is fair? Economists tend to focus on the efficiency of taxes Canadian policy debates are dominated by discussions about whether the tax burden is distributed fairly TAXES AND EQUITY Evaluating the equity of a tax system Benefits principle Ability-to-pay principle $ Benefits Principle The benefits principle is the idea that people should pay taxes based on the benefits they receive from government services. An example is a gasoline tax: Tax revenues from a gasoline tax are used to finance our highway system. People who drive the most also pay the most toward maintaining roads. Ability-to-Pay Principle The ability-to-pay principle is the idea that taxes should be levied on a person according to how well that person can shoulder the burden. The ability-to-pay principle leads to two corollary notions of equity. Vertical equity Horizontal equity Ability-to-Pay PrincipleVertical Equity Vertical equity is the idea that taxpayers with a greater ability to pay taxes should pay larger amounts. For example, people with higher incomes should pay more than people with lower incomes. Vertical Equity and Alternative Tax Systems A proportional tax is one for which high-income and low-income taxpayers pay the same fraction of income. A regressive tax is one for which high-income taxpayers pay a smaller fraction of their income than do low-income taxpayers. A progressive tax is one for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers. Ability-to-Pay PrincipleVertical Equity Horizontal equity is the idea that taxpayers with similar abilities to pay taxes should pay the same amounts. For example, two families with the same number of dependents and the same income living in different parts of the country should pay the same federal taxes. Ability-to-Pay PrincipleHorizontal Equi