Monday, March 17, 2008

Basic principles of Taxation

Ability to Pay Principle: taxation should be levied according to an individual's ability to pay; that is, individuals with higher incomes should be charged higher taxes.

Benefit approach principle: the amount of taxes a person should pay by the benefits received in public services.

Equal sacrifice theory: the surrender of equal measures of utility by taxpayers. Equal sacrifice theory has three sub-groups:

1. Equal absolute sacrifice (where each taxpayer surrenders the same absolute degree of utility that he obtains from his income).

2. Equal proportional sacrifice (where each sacrifices the same proportion of utility he receives from his income).

3. Equal marginal sacrifice (where each gives up the same utility from the last unit of income)

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