Sacrifice principle and the Benefit principle of Taxation - DARP
Sacrifice principle and the Benefit principle of Taxation - DARP
Sacrifice principle and the Benefit principle of Taxation - DARP
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<strong>Taxation</strong> <strong>and</strong> Income Distribution<br />
Residual progression under equal absolute sacrifice<br />
approach<br />
<br />
Assume U (y) – U (y - t) = constant<br />
U(y) = ( y 1-ε - 1)/(1-ε)<br />
Residual progression <strong>of</strong> T (differentiate <strong>and</strong> rearrange)<br />
y –ε - [1 - T’(y)] [y – T(y)] –ε = 0<br />
RP = [1 - T’(y)]/[1 – T(y)/y] = [1 – T(y)/y] ε-1<br />
RP > 1 because ε > 1 (Cowell-Gardiner, 2000)<br />
If <strong>the</strong>re is no tax, T(x) = 0, residual progression is 1<br />
Tax system under equal sacrifice <strong>principle</strong> L-dominates no<br />
taxation
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