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Rethinking the Ability-to-Pay and Equal Sacrifice Principles of Taxation: An Alternative Rationale for a Progressive Income Tax

Harashima, Taiji (2020): Rethinking the Ability-to-Pay and Equal Sacrifice Principles of Taxation: An Alternative Rationale for a Progressive Income Tax.

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Abstract

Progressive income taxes have usually been justified on the basis of the ability-to-pay (ATP) and equal sacrifice principles, but how ATP and sacrifice should be measured remains unsettled. In this paper, I present an alternative rationale for progressive taxes on the basis of the concept of sustainable heterogeneity (SH). I conclude that income taxes have to be progressive for SH to be achieved, and therefore, progressive income taxes can be justified without relying on the ATP and equal sacrifice principles. In addition, for SH to be achieved, households should also be burdened with taxes to cover expenses for achieving policy objectives other than SH in proportion to their incomes, that is, roughly in relation to their consumption, such as the case with a value-added tax.

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