Public Finance, 3rd Edition

Chapter 11

Applying First-Best Principles of Taxation—What to Tax and How

Abstract

Chapter 11 presents a wide-ranging discussion of the ability-to-pay principle of taxation, with the U.S. personal income tax serving as the application. Topics include the debate over Haig-Simons income versus consumption as the ideal tax base, Young’s approach to vertical equity in accordance with the equal-sacrifice principle, Auerbach’s proposal for retrospective taxation of capital, indexing for inflation, and Kaplow’s proposal for taxing human capital.

Keywords

Ability to pay principle; Haig-Simons income; Horizontal equity; Loopholes; Progressive/Proportional/Regressive taxes; Retrospective taxation (capital gains); Vertical equity

Chapter Outline

Designing Broad-Based ...