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

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  • Harashima, Taiji

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.

Suggested Citation

  • Harashima, Taiji, 2020. "Rethinking the Ability-to-Pay and Equal Sacrifice Principles of Taxation: An Alternative Rationale for a Progressive Income Tax," MPRA Paper 102937, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:102937
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    References listed on IDEAS

    as
    1. Samwick, Andrew A., 1998. "Discount rate heterogeneity and social security reform," Journal of Development Economics, Elsevier, vol. 57(1), pages 117-146, October.
    2. Young, H. P., 1987. "Progressive taxation and the equal sacrifice principle," Journal of Public Economics, Elsevier, vol. 32(2), pages 203-214, March.
    3. Richter, Wolfram F., 1983. "From ability to pay to concepts of equal sacrifice," Journal of Public Economics, Elsevier, vol. 20(2), pages 211-229, March.
    4. Harashima, Taiji, 2016. "Ranking Value and Preference: A Model of Superstardom," MPRA Paper 74626, University Library of Munich, Germany.
    5. Harashima, Taiji, 2010. "Sustainable Heterogeneity: Inequality, Growth, and Social Welfare in a Heterogeneous Population," MPRA Paper 22521, University Library of Munich, Germany.
    6. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
    7. Louis Kaplow & Steven Shavell, 2001. "Any Non-welfarist Method of Policy Assessment Violates the Pareto Principle," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 281-286, April.
    8. Harashima, Taiji, 2012. "Sustainable Heterogeneity as the Unique Socially Optimal Allocation for Almost All Social Welfare Functions," MPRA Paper 40938, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Ability-to-pay principle; Benefit principle; Equal sacrifice principle; Progressive tax; Social welfare; Sustainable heterogeneity;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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