Equity (economics)

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Equity is the concept or idea of fairness in economics, particularly as to taxation or welfare economics.


Equity may be distinguished from economic efficiency in overall evaluation of social welfare. Although 'equity' has broader uses, it may be posed as a counterpart to economic inequality in yielding a "good" distribution of welfare. It has been studied in experimental economics as inequity aversion.

In public finance horizontal equity is the idea that people with a similar ability to pay taxes should pay the same or similar amounts. It is related to the concept of tax neutrality or the idea that the tax system should not discriminate between similar things or people, or unduly distort behavior.[1].

Vertical equity usually refers to the idea that people with a greater ability to pay taxes should pay more. However, to those that believe in a flat tax, the idea of vertical equity could mean that the rich should not be punished for their success by paying higher taxes than others. If the rich pay more in proportion to their income, this is known as a proportional tax; if they pay an increasing proportion, this is termed a progressive tax, more associated with redistribution of wealth.[2]

Economists distinguish between three types of equities: universal equity measured through an inequity index, compensatory equity applies where universal equity cannot be achieved, and status equity illustrated by the special care delivered to war veterans, the handicapped, or the supplementary protection to diplomats and representatives of international intergovernmental organizations, under the Vienna Convention.[3]

Fair division

Equitability in fair division means every person’s subjective valuation of their own share of some goods is the same. The surplus procedure (SP) achieves a more complex variant called proportional equitability. For more than 2 people a division cannot always both be equitable and envy-free.[4]


This page originally adapted from the Wikipedia page: [1]

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  • Xavier Calsamiglia and Alan Kirman (1993). "A Unique Informationally Efficient and Decentralized Mechanism with Fair Outcomes," Econometrica, 61(5) , pp. 1147-1172.
  • A.J. Culyer (1995). "Need: The idea won't do — but we still need it," Social Science and Medicine, 40 (6), pp. 727–730.
  • Jean-Yves Duclos (2008). "horizontal and vertical equity," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
  • Allan M. Feldman (1987). "equity," The New Palgrave: A Dictionary of Economics, v. 2, pp. 182–84.
  • Peter J. Hammond (1987). "altruism," The New Palgrave: A Dictionary of Economics, v. 1, pp. 85–87.
    • Julian Le Grand {1991). Equity and Choice: An Essay in Economics and Applied Philosophy. Chapter preview links.
  • Richard A. Musgrave (1959). The Theory of Public Finance: A Study in Political Economy.
  • _____ (1987). "public finance," The New Palgrave: A Dictionary of Economics, v. 3, pp. 1055–60.
  • Richard A. Musgrave and Peggy B. Musgrave (1973). Public Finance in Theory and Practice
  • Joseph E. Stiglitz (2000). Economics of the Public Sector, 3rd ed. Norton.
  • William Thomson (2008). "fair allocation," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
  • World Bank. World Development Report 2006: Equity and Development.Summary with ch. links.
  • Young, Peyton (1994). Equity: In Theory and Practice. Princeton NJ: Princeton University Press Contents and introduction
  1. Musgrave (1987), pp. 1057-58.
  2. Musgrave (1959), p. 20.
  3. Fairness, Inequity Index fckLRand Equality in Policy-Making by Alain Paul Martin, 2010.
  4. Better Ways to Cut a Cake by Steven J. Brams, Michael A. Jones, and Christian Klamler in the Notices of the American Mathematical Society December 2006.