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Difficulty: Very hardPrinciples and Canons of Taxation

Under public finance principles, a tax structure engineered to achieve strict vertical equity through highly differentiated progressive rate schedules across multiple income tiers automatically satisfies Adam Smith's Canon of Economy.

Answer: Answer

Answer

The statement is False.
Evaluating the statement as False is correct because constructing multi-tiered progressive rate structures to achieve vertical equity increases compliance costs and administrative overhead, directly violating the Canon of Economy's requirement to minimize collection costs relative to revenue.

Step-by-Step Solution

1
Define the core requirements of Adam Smith's Canon of Equity and Canon of Economy.
The Canon of Equity mandates that tax burdens be distributed according to ability to pay (vertical equity), while the Canon of Economy mandates that the cost of assessing and collecting taxes be minimized relative to total revenue yielded.
Comparing baseline economic definitions is required to test the implied relationship between the two canons.
2
Analyze the operational impact of creating highly differentiated progressive tax tiers.
Fine-grained progressive tax systems increase legal complexity, record-keeping requirements, and auditing frequency for tax authorities, which elevates overall administrative overhead.
Evaluating administrative expenses determines whether achieving vertical equity aligns with or violates economic efficiency in collection.
3
Synthesize the relationship between tax equity and tax economy.
Rather than automatically fulfilling the Canon of Economy, maximizing vertical equity typically introduces administrative frictions and compliance burdens, demonstrating a trade-off rather than automatic alignment.
This confirms that fulfilling vertical equity does not guarantee compliance with the Canon of Economy, making the original statement false.

Key Concept

Trade-off between Canons of Taxation (Equity vs. Economy)
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Topics

Principles and Canons of Taxation

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