Horizontal Equity

Published Jan 1, 2023

Definition of Horizontal Equity

Horizontal equity is a principle of taxation that states that people with the same income should pay the same amount of taxes. That means it is a form of fairness in taxation, as it ensures that people with the same ability to pay are treated equally.

Example

To illustrate this, let’s look at two people, John and Mary. Both of them have an annual income of USD 50,000. They are both single and live in the same neighborhood. According to the principle of horizontal equity, they should both pay the same amount of taxes, because they both have the same ability to pay. That means if the tax rate for people with an income of USD 50,000 is 10% for example, then both John and Mary should pay USD 5,000 in taxes. Anything else would be considered unfair by the standards of this principle.

Why Horizontal Equity Matters

Horizontal equity is an important principle of taxation, as it ensures that people with the same ability to pay are treated equally. This is important, but it only works if people can be prevented from avoiding taxes by hiding their income or using loopholes in the tax system.

In addition to that, horizontal equity has a lot to do with the perceived fairness of a tax system. If taxes are different depending on factors like age, gender, or ethnicity, most people would consider it unfair and not support it.