The Principles of Fairness & Efficiency in Designing of Tax Systems
University of Leicester, United Kingdom
The aim of this study was to examine the ability of governments to come up with a tax system which is both fair and efficient simultaneously. The study successfully explored the concepts of fairness and efficiency during the design process of a tax system, in order to ensure successful implementation. The paper begins with covering the features of a good taxation system; it continues with explaining, in detail, the principles of fairness and efficiency, including the economic efficiency approach. According to the study, fairness can be well illustrated using the horizontal and vertical equity models. Under the horizontal equity approach, fairness of taxation systems assumes that people enjoying equivalent conditions should all be treated in an equal manner. In relation to the vertical approach, it is required that a similar level of fairness should be reached to include people that exhibit different and unique circumstances. The study also covered a broad definition of efficiency which is when the resultant state facilitates the very minimum level of costs of meeting a given set of goals and objectives. This means the ability of a government to accomplish a given set of goals and objectives at minimal costs or even minimal gains, on a similar level of resources invested at any given moment in time. The paper concludes that it is not possible for any taxation system to be fair and efficient simultaneously and that there would always be a degree of conflict in trying to attain both fairness and efficiency for any given tax system.