How does tax affect efficiency and equity?

Answer 1

Tax both decreases efficiency and equity.

It decreases efficiency, because you are taking away from wages or material.

It decreases equity, because it is a liability on a fixed asset, such as land.

Answer 2

Efficiency is usually defined for an economy as productivity and/or growth of productivity. The productivity depends on capital investment, innovation, and increasing the quality and educational level of the workforce. The rich are more likely to invest so taxes on them will decrease capital investment. Taxes on high incomes would also discourage people from taking risk to increase their income, so innovation would be less. However poor people have more children so if their incomes are so low that they can not afford to provide them with good care, medical services and education, the quality of the future workforce will suffer. So the choice isn't really between efficiency and equity, but of finding the right balance to produce the maximum growth both now and in the future.

Answer 3

We tax in a progressive manner. Thus the tax bite is designed to bite the higher earning end and redistribute this to the lower earning end in the form of income support and income maintenance programs. The take from the rich and give to the poor theory of equality. Thus taxes lead to a MORE equitable distribution of income. Trust me on this one. It is not "efficient" because the tax is burdened upon those member of society who are working hard and taking risks. Taxing this behavior will diminish this behavior which is the opposite of what a nation would want to do if we are out to encourage hard work, innovation and stimulate growth.

Answer 4

econ girl is correct about, higher taxes discouraging working period. Progressive tax system is inefficent for the most part, but the economy is never how Friedmann sees it.

Demark taxes higher than France thier unemployment rate is low. I think legal transparent legal system, and property rights determine a country wealth more than tax rates. Low taxes are good, but the market nor the goverment is the solution to every ill or economic problem.