Equal Sacrifice Theory
The surrender of equal measures of utility by taxpayers
Equal sacrifice theory has three sub-groups:
- Equal absolute sacrifice (where each taxpayer surrenders the same absolute degree of utility that he obtains from his income).
- Equal proportional sacrifice (where each sacrifices the same proportion of utility he receives from his income).
- Equal marginal sacrifice (where each gives up the same utility from the last unit of income): It is often used to justify progressive taxation. The idea is to examine what a person gives up when the last pound of taxes is paid. To pay the last £50 in taxes, a low-income person might have to give up something essential, such as a pair of shoes. A high-income person might give up a luxury of little practical value or necessity. Accordingly, taxes should be increased on the high-income person and reduced on the low-income person until both sacrifice equally when the last pound of taxes is paid.
Wider applications of the concept
The general concept of equal sacrifice applies to many economic and commercial situations and has been used by many commentators and financial experts in a range of scenarios.
Financial markets in particular often use the concept of progressive finance in relation to investment and commercial funding. The availability and allocation of credit facilities can also be viewed in this way.
Personal finance and debt management certainly require a wider scope of analysis and this is a dynamic market that continues to change and evolve. One part of this market in particular that is very active is the debt advice sector which currently clearly illustrates the cost of providing finance when debt becomes a problem and can’t be repaid.
Debt management solutions are on the increase and Debt Arrangement Schemes, Trust Deeds and Bankruptcy form a significant part of that. Credit and debt are a fundamental part of our economy and in fact are recognised as drivers of economic activity. However there is a cost to both individuals and the economy when debt goes wrong.