Horizontal Equity

Posted in Finance, Accounting and Economics Terms, Total Reads: 612
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Definition: Horizontal Equity

Horizontal Equity is a concept of economics that is used in the areas of taxation and healthcare. Horizontal equity is about achieving “neutrality” in those areas.

 

Horizontal Equity in Taxation:

It is the idea of “tax neutrality” which suggests that people earning the same level of income should be taxed the same irrespective of other factors like age/gender/race/nationality/way income was earned/other assets, etc. It stresses that taxation must be based only on the “ability to pay” which is reflected by one’s income.

 

For example, horizontal equity states that two people earning an income of Rs. 6 lakhs annually will be taxed the same amount irrespective of any other factor. Even if one of them is, say, a senior citizen, he/she will not get any tax benefits because of the age factor. Likewise, tax benefits cannot be availed against other criteria like existing home loans, gender, etc.

 

The idea of tax neutrality is very difficult to achieve and no country has been able to do it completely. The administrative burden on the tax authorities is huge and some members of the society oppose the idea as well. This is why most countries follow the practice of “proportionate taxation” (vertical equity), which is based on income level as well as other considerations.

 

Horizontal Equity in Health Care:

This is again an economic concept of equity which states that all types of people, be it rich or poor, literate or illiterate, must get the same level of health care access irrespective of any other factor. On the other hand, vertical equity is “needs based” and states that people with higher needs (like the ones with more critical illnesses) must be given better access to health care as against those with lesser needs.

 

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