Horizontal Equity

AAA

DEFINITION of 'Horizontal Equity'

An economic theory that states that individuals with similar income and assets should pay the same amount in taxes. Horizontal equity should apply to individuals considered equal regardless of the tax system in place. The more neutral a tax system is the more horizontally equitable it is considered to be.

INVESTOPEDIA EXPLAINS 'Horizontal Equity'

Horizontal equity is hard to achieve in a tax system with loopholes, deductions and incentives, because the presence of any tax break means that similar individuals do not pay the same rate. For example, by allowing mortgage payments to be deducted from income tax, governments create a difference in tax payments between two tax filers who may otherwise be considered economically similar.

RELATED TERMS
  1. Ability-To-Pay Taxation

    Taxation in the form of a progressive tax. The ability-to-pay ...
  2. Tax Evasion

    An illegal practice where a person, organization or corporation ...
  3. Negative Income Tax - NIT

    A guaranteed minimum income plan advocated by economist Milton ...
  4. Progressive Tax

    A tax that takes a larger percentage from the income of high-income ...
  5. Federal Tax Brackets

    Income tax groupings specified by the Internal Revenue Service ...
  6. Tax Rate

    The percentage at which an individual or corporation is taxed. ...
RELATED FAQS
  1. How is cost basis calculated on an inherited asset?

    Typically, the cost basis on inherited assets is the fair market value as of the time of the decedent's death or actual transfer ... Read Full Answer >>
  2. When has the United States run its largest trade deficits?

    In macroeconomics, balance of trade is one of the leading economic metrics that determines the trading relationship of a ... Read Full Answer >>
  3. Which is more important to a nation's economy, the balance of trade or the balance ...

    There is no question the composition of a country's balance of payments is more important than its balance of trade. This ... Read Full Answer >>
  4. In what instances does overhead qualify for certain tax allowances?

    Businesses are just as keen as anyone else to keep their tax burdens low by any means possible. Overhead expenses often qualify ... Read Full Answer >>
  5. What are the ethical arguments against government subsidies to companies like Tesla?

    The ethical argument behind government subsidies is that they should be put into place to help industries that will, in turn, ... Read Full Answer >>
  6. How can tariffs cause inefficiencies in domestic industries?

    Any government regulation naturally creates inefficiencies in a pure supply and demand marketplace. When it comes to the ... Read Full Answer >>
Related Articles
  1. Retirement

    For IRAs, Time Is Money

    Don't procrastinate. The timing of your contributions can mean thousands more in savings.
  2. Options & Futures

    How To Owe Nothing On Your Federal Tax Return

    You have the control to determine whether you owe in April. Learn more here.
  3. Taxes

    Do Tax Cuts Stimulate The Economy?

    Learn the logic behind the belief that reducing government income benefits everyone.
  4. Budgeting

    9 Ways To Use A Tax Refund

    How do you plan to spend your refund this year? We provide some smart suggestions.
  5. Investing Basics

    Top 10 Solutions For A Big Tax Bill

    Ignoring a big tax bill will only increase your pain. Fortunately, there are ways to diffuse the tax time bomb before it explodes.
  6. Economics

    What Is a Quota?

    In business, quota usually refers to the sales target for a salesperson or a sales team.
  7. Economics

    What Does Infrastructure Mean?

    Examples of infrastructure include mass transit, communication, sewage, water and electric systems, plus roads, bridges and tunnels.
  8. Economics

    Calculating the GDP Price Deflator

    The GDP price deflator adjusts gross domestic product by removing the effect of rising prices. It shows how much an economy’s GDP is really growing.
  9. Economics

    What's a Centrally Planned Economy?

    A centrally planned economy is one where the government controls the country’s supply and demand of goods and services.
  10. Economics

    A Comparison Between a Default and a Collapse

    Is the Greek default similar to the Lehman Brothers collapse?

You May Also Like

Hot Definitions
  1. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  2. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  3. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  4. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  5. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  6. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!