Horizontal Equity: A Further Note

Abstract

Writing some thirty years ago, I argued that "the requirements of horizontal and vertical equity are but different sides of the same coin. If there is no specified reason for discriminating among unequals, how can there be a reason for avoiding discrimination against equals?" The call for horizontal equity ("HE") without a vertical equity ("VE") rule, as I argued, is at best to be seen as a protection against arbitrary discrimination, a goal which could also be met by random taxation. I stayed with that view until Louis Kaplow's support of a similar position made me return to the issue. Perhaps a bit wiser if less clever, I then came to conclude that there was a case, after all, for recognizing HE as a distinct norm. Kaplow, responding in this Review, rejected my case as assuming what is to be proven. I am not persuaded and hence this further note.
As I suggested in my paper, a distinction need be drawn between viewing the problem in a first best setting where taxes can be arranged so as to fully comply with equity norms and situations where, due to political or other constraints, the choice is among second best solutions. The same distinction is again drawn here.