notions of equity
Horizontal and Vertical Equity
Vertical equity is the unequal treatment of unequals.
Horizontal equity is the equal treatment of equals
How do these two notions of equity translate into reasons for government intervention in markets?
Equity and the Tax System
Horizontal equity is the principle that taxpayers in similar financial circumstances must be treated in the same way, ie people on the same incomes should pay the same amount in income tax.
In order to achieve vertical equity taxpayers with different resources must be treated differently, for example, by introducing a tax structure with progressively rising tax rates. If the Government decided to make the UK tax system much more progressive in a bid to reduce relative poverty, this would be in accordance with the principles of vertical equity - but there is often a trade-off between vertical equity and efficiency.
Critics of higher marginal and average rates of tax for high-income households claim that increased taxation creates disincentives to work and take entrepreneurial risks which can have a detrimental effect on the long term growth rate and prosperity of an economy.
Equity in Health Care
The twin concepts of horizontal and vertical equity can be applied to many policy issues. Let us consider briefly the important topic of health care. Horizontal equity represents equal access to medical services to all individuals irrespective of factors such as location, ethnicity, religion and the age of a patient, in other words, equal treatment of equal need.
For example, when two people need hip replacements, they should wait the same length of time before surgery and receive the same volume and quality of care. Vertical equity means equal access irrespective of income or financial wealth. It might also refer to an aim of unequal treatment for unequal need, i.e. more resources allocated for treating people with serious conditions than for those with trivial complaints
Equity and Fairness
There is no getting away from the reality that equity is normative issue.
For example decisions about what type of state health care system to provide and which treatments and drugs to make available depend crucially on people's values and views about what the main purpose of the health service should be. Strong believers in social justice and the NHS as an agent for redistribution might focus on the concept of vertical equity - for example the provision of most health treatments free at the point of use but financed through a progressive income tax or national insurance system.
Vertical equity has been a strong underpinning for the system of health care finance in the UK for many years. Rich people are better able to contribute towards the costs of health care than poor people. Because they are rich they are treated unequally, and required to pay more through their taxes towards the costs of the NHS.
Underlying the concept of equity is the notion of "fairness". We talk about the tax system operating fairly and we consider the welfare state as a mechanism for providing a fair basic standard of living for people living in this country. But inevitably, our perceptions about what is "fair" are wrapped up in our own valued-judgements and beliefs.
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