On the equitability of progressive taxation

We propose the principle of equal sacrifice to determine the class of ''vertically inequitable'' progressive taxes. A necessary condition for an income tax Function to be equal sacrifice is formulated, and hence, a subclass of progressive taxes which cannot inflict the same sacrifice upon all individuals relative to any strictly increasing and concave utility function is determined. Conversely, it is shown in a general framework that any convex (thus progressive) tax function satisfies the principle of equal sacrifice. Our findings point to the fact that equal sacrifice under progressive income taxation depends heavily upon the degree of marginal rate (as opposed to average rate) progressivity. (C) 1997 Academic Press.