Sunday, March 02, 2008

Progressivity of taxation

Greg Mankiw shows this remarkable graph, about the tax payments made by households in five quintiles of income categories in the US:

Unfortunately, information systems in India are so weak, one just doesn't know what a comparable picture in India might look like.

A lot of people believe that income tax rates should be `progressive' - i.e. that richer people should pay higher tax rates. A belief that progressivity of income tax is a `good' thing is one of the instinctive reflexes from the decades of socialism. However, the logic in favour of this from first principles is not apparent, as David Friedman recently reminded us.

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