Horizontal Equity and Choice between Income and Expenditure Taxes

Horizontal Equity and Choice between Income and Expenditure Taxes M N Murty This paper argues that while an expenditure tax is superior to an income tax from the point of view of horizontal equity and other economic objectives, partial tax reforms like substituting an expenditure tax for a personal income tax may not be welfare improving. An attempt is made to provide a method of estimation of incidence of revenue policies that affect consumer expenditure (commodity taxes, public sector commodity price-cost mark-ups and an expenditure tax) on people in various expenditure classes in the economy Finally, some estimates are presented of distribution of burden of commodity and personal income taxes in India by household consumer expenditure classes.