Horizontal equity is a principle by which subjects in similar economic conditions should receive the same treatment. This, particularly, in the tax area.
In other words, according to this principle (which is part of tax equity), those with a similar taxable capacity must pay the same tax rate.
It should be noted that the ability to pay depends on the individual's income and his or her assets. Then, the tax rate can be determined, for example, on the basis of the individual's remuneration or his disposable income.
However, the treasury can take into account non-economic variables such as geographic location or age.
In any case, what the principle seeks is non-discrimination or non-exclusion. Thus, all taxpayers with similar characteristics should be treated in the same way.
It should be clarified that horizontal equity can be applied not only to define collection schemes, but also to decide the use of the treasury. Thus, taxpayers in the same economic situation should receive the same benefits from the State.
Horizontal equity in reality
It is difficult to perfectly apply the concept of horizontal equity in reality. This, because there will always be characteristics that distinguish individuals.
To explain the above, let's look at the case of a progressive personal income tax, where a higher percentage is charged to those who earn more. So, under this scheme, two individuals with a similar income are subject to the same tax burden.
For example, imagine that taxpayers who earn between 5,000 and 10,000 euros per month must pay a rate of 20%. Therefore, this percentage must be paid by Diana and Carlos, who receive the same salary, 6,000 euros per month.
However, between Carlos and Diana there can be many differences, such as the level of accumulated wealth. Perhaps one has many more properties and savings than the other.Horizontal analysis