Key terms
- Equity
- Equity is fairness in how income, wealth and opportunity are shared out, judged against a view of what people ought to have.
- Equality
- Equality is a situation in which people or groups end up with the same, or nearly the same, amount of something, such as income.
Economists use two ideas of fair treatment
Can you name the two kinds of equity economists use to judge whether people are treated fairly?
Both are most often applied to taxes and benefits.
Definition
Horizontal equity is treating people in the same economic position in the same way, so that people with equal incomes pay equal tax.
Can you think of an example?
Example
Two nurses in England each earn £38,000 a year, one in Leeds and one in Bristol. They pay the same income tax, whatever their postcode, hobbies or family name.
Definition
Vertical equity is treating people in different economic positions differently, in a way judged fair, such as asking those with higher incomes to pay more.
Can you think of an example?
Example
UK income tax rates rise in bands as income rises, so someone earning £100,000 pays a larger share of their income in tax than someone earning £20,000.