Define horizontal and vertical equity and discuss the concepts with respect to legitimacy and usefulness
What will be an ideal response?
The principle of horizontal equity states that people with an equal ability to pay should pay the same tax while the principle of vertical equity states that people with a greater ability to pay should pay an appropriate amount more than those with less ability to pay. Both horizontal and vertical equity are legitimate because both principles are generally recognized as normative measures of fairness in taxation. In terms of usefulness, both criteria are difficult to implement if it is difficult to measure ability to pay, which it usually is, being a normative concept. In addition, it is often difficult to know how much extra those with a greater ability to pay need to pay to satisfy the principle of vertical equity.
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One way to remove the excess labor supply problem from a minimum wage policy is to have the government hire all unemployed workers at the minimum wage. What is the key drawback of this version of a minimum wage policy?
A) The deadweight loss may increase substantially. B) The cost to the government may be very large. C) Consumer surplus losses increase further. D) A and B are correct. E) B and C are correct..
Which of the following is true when the government imposes a price ceiling on a monopolist?
A) Marginal revenue becomes horizontal. B) Marginal revenue is linear. C) Marginal revenue is kinked—horizontal and then downward sloping. D) Marginal revenue is kinked—downward sloping and then horizontal.