1. Equity Concepts Anderson: Equity Aspects of Taxes and Expenditures

2. Copyright © by Houghton Mifflin Company. All rights reserved. 2 Equity Concepts Horizontal equity: treat equals equally Vertical equity: treat unequals unequally Defining equals is a problem: Do we use income, wealth, or consumption?

3. Copyright © by Houghton Mifflin Company. All rights reserved. 3 Equity Concepts, [continued] Conflicts can arise between horizontal and vertical equity. Suppose that we grant a property tax exemption for the first $100,000 of property value for agricultural land owners. We might consider that change an improvement in the vertical equity of the property tax, making the tax more progressive, but it also worsens the horizontal equity of the property tax when we consider property owners in the residential, commercial, and industrial classes of property.

4. Copyright © by Houghton Mifflin Company. All rights reserved. 4 Figure 12.11: Effect of the Tax and Expenditure System on the Income Distribution

5. Copyright © by Houghton Mifflin Company. All rights reserved. 5

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