Equity (economics) - Definition

• For "equity" as the value of an ownership interest in property, see ownership equity or shareholders' equity.

Equity in economics is related to the idea of fairness, patricularly in terms of taxation and welfare economics.

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 unduely distort behaviour.

Vertical equity is the idea that people with a greater ability to pay taxes should pay more. If they pay more strictly in proportion to their income, this is known as a proportional tax or flat tax; if they pay disproportionately more then this is a progressive tax leading to redistribution.