Efficiency vs. Fairness

Economists have long been concern ..ed with the impact of taxes on economic efficiency, Recall from Chapter 14 that Henry George argued that a tax 011 land will have little on efficiency because the But economics and politics do 1101 run 011 efficiency alone. “While stiff taxation 01 land rents food might be efficient. man would think them fair. A sober reminder of the dilemma was the proposal to introduce a poll tax in Britain in 1990. A tax is a lump-sum tax, or a fixed tax per person. The advantage of this tax is that, like a land tax, it would induce no inefficiencies. After all, people are unlikely to decamp to Russia or commit Kalahari to avoid the tax, so the economic distortions would arguably be minimal. Alas, the British government underestimated the extent to which the ‘populace felt this tax to be unfair. The poll tax is highly regressive because it places a much higher proportional burden on low-income people than on high-income people. Criticism poll tax ,played a key role in bringing down the Thatcher government after II years in power .. This illustrates clearly the difficult choice between efficiency and fairness in taxes and other areas of economic policy.