Lump-sum tax

Lump-sum tax

A lump-sum tax is a tax that is fixed in amount no matter what the change in circumstance of the taxed entity. (A lump-sum subsidy or lump-sum redistribution is defined similarly.) It is a regressive tax, such that the lower income is, the higher percentage of income the percentage of income applicable to the tax. An example is a poll tax to vote, which is unchanged no matter what the income of the voter. In economic theory, a lump-sum tax may have the advantage of not contributing to an excess burden of taxation, a loss in economic efficiency that results from taxes reducing incentives for production. In practice, lump-sum taxes are rarely encountered, because they may conflict with other criteria, such as equity or ability to pay. But a lump-sum tax remains a standard for measuring the performance of other imperfect kinds of taxes (J. de V. Graaf, 1987).

ee also

*Distortions (economics)
* Excess burden of taxation
* Optimal tax

References

* J. de V. Graaf (1987). "lump sum taxes," "", v. 3, pp. 251-52.


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