to proposals to alter the rates and structures of particular taxes such as VAT. Although such proposals may improve horizontal and vertical equity within the limited group subject to the full legal burden of the tax, the same changes may sometimes actually exacerbate inequity more broadly considered. From the perspective of social and economic inequality, what matters in the end is surely the overall impact of the budgetary system Equity is always and everywhere a central issue in taxation. From one perspective, the principal rationale for taxes in the first place may be thought of as an attempt to secure equity. After all, governments do not need taxes to secure money because they print the money in the first place. The role of the tax system is instead to take money away from the private sector in as efficient, equitable, and administratively least costly fashion as possible. Equity, with efficiency and administrability, is thus one of the three principal objectives in designing any tax system.

Of course, exactly what is considered to be equitable (or fair) by any particular person may differ from conceptions held by others and in the end only through the political institutions within which countries reconcile (if they do) conflicting views and interests can a country’s views of what constitutes an equitable tax system be defined and implemented although of course the results of this process may diverge widely from what others may think of as fair.

In general, equity issues may be approached at two different levels.

First, one may consider the details of exactly how different taxes impose burdens on taxpayers who are in the same and different economic circumstances.

Secondly, one may instead focus on the overall effects of taxation on the income and level of well-being of different people. The policy implications of these two different ways of approaching the equity of taxation may be quite different, with economists tending to take the second approach while much popular discussion of taxation instead takes the first approach. Focusing on the implications for equity of details of particular taxes leads, for example, to proposals to alter the rates and structures of particular taxes such as VAT. Although such proposals may improve horizontal and vertical equity within the limited group subject to the full legal burden of the tax, the same changes may sometimes actually exacerbate inequity more broadly considered. From the perspective of social and economic inequality, what matters in the end is surely the overall impact of the budgetary system o

fashion as possible. Equity, with efficiency and administrability, is thus one of the three principal objectives in designing any tax system.

Of course, exactly what is considered to be equitable (or fair) by any particular person may differ from conceptions held by others and in the end only through the political institutions within which countries reconcile (if they do) conflicting views and interests can a country’s views of what constitutes an equitable tax system be defined and implemented although of course the results of this process may diverge widely from what others may think of as fair.

In general, equity issues may be approached at two different levels.

First, one may consider the details of exactly how different taxes impose burdens on taxpayers who are in the same and different economic circumstances.

Secondly, one may instead focus on the overall effects of taxation on the income and level of well-being of different people. The policy implications of these two different ways of approaching the equity of taxation may be quite different, with economists tending to take the second approach while much popular discussion of taxation instead takes the first approach. Focusing on the implications for equity of details of particular taxes leads, for example, to proposals to alter the rates and structures of particular taxes such as VAT. Although such proposals may improve horizontal and vertical equity within the limited group subject to the full legal burden of the tax, the same changes may sometimes actually exacerbate inequity more broadly considered. From the perspective of social and economic inequality, what matters in the end is surely the overall impact of the budgetary system

f what constitutes an equitable tax system be defined and implemented although of course the results of this process may diverge widely from what others may think of as fair.

In general, equity issues may be approached at two different levels.

First, one may consider the details of exactly how different taxes impose burdens on taxpayers who are in the same and different economic circumstances.

Secondly, one may instead focus on the overall effects of taxation on the income and level of well-being of different people. The policy implications of these two different ways of approaching the equity of taxation may be quite different, with economists tending to take the second approach while much popular discussion of taxation instead takes the first approach. Focusing on the implications for equity of details of particular taxes leads, for example, to proposals to alter the rates and structures of particular taxes such as VAT. Although such proposals may improve horizontal and vertical equity within the limited group subject to the full legal burden of the tax, the same changes may sometimes actually exacerbate inequity more broadly considered. From the perspective of social and economic inequality, what matters in the end is surely the overall impact of the budgetary system

ad focus on the overall effects of taxation on the income and level of well-being of different people. The policy implications of these two different ways of approaching the equity of taxation may be quite different, with economists tending to take the second approach while much popular discussion of taxation instead takes the first approach. Focusing on the implications for equity of details of particular taxes leads, for example, to proposals to alter the rates and structures of particular taxes such as VAT. Although such proposals may improve horizontal and vertical equity within the limited group subject to the full legal burden of the tax, the same changes may sometimes actually exacerbate inequity more broadly considered. From the perspective of social and economic inequality, what matters in the end is surely the overall impact of the budgetary system to proposals to alter the rates and structures of particular taxes such as VAT. Although such proposals may improve horizontal and vertical equity within the limited group subject to the full legal burden of the tax, the same changes may sometimes actually exacerbate inequity more broadly considered. From the perspective of social and economic inequality, what matters in the end is surely the overall impact of the budgetary system on the distribution of wealth and income rather than the details of particular fiscal instruments like VAT. Nonetheless, such considerations are seldom given much weight when it comes to tax design, a process which almost invariably proceeds on a tax-by-tax basis.

In many countries, for example, consumption taxes are generally considered to be highly regressive. Some may note that taxes on consumption are less regressive on a lifetime rather than annual perspective, but given the relatively short life expectancies in many economic transition countries (ETC) and the subsistence level at which many people in such countries live daily, such refinements are likely to carry little weight. It is thus not surprising to find that many ETC provide for reduced VAT rates or exemptions for certain “basic” items such as some foods, passenger transport, medical services, and cooking fuel. In some countries, substantial differences exist in consumption patterns between income groups. More generally, however, the common riposte to such policies is that whatever small degree of progressivity they may achieve could be more effectively and fairly attained through small changes in the income tax or by adjustments in transfer payments, although in countries in which the poor do not as a rule suffer from income tax or benefit from transfer payments this observation is largely irrelevant.

The conventional argument that there is unlikely to be much gain in imposing differential “luxury” rates under a VAT even in ETC given the efficiency and administrative costs to which such differentiation gives rise, seems convincing, especially since more can be done with less collateral damage through excise taxes on such commodities, if desir