Final answer:
The equity of a tax system is best captured by the concept of fairness, which includes principles such as the benefit principle and the ability to pay, aiming to distribute the tax burden equitably across society based on benefit and financial capacity.
Step-by-step explanation:
The equity of a tax system is best described by the concept of fairness. This involves evaluating how the tax system spreads the burden among different sections of society. In principle, it should be aligned with the ability to pay, where those with greater financial resources bear a larger proportion of the tax burden.
Two key principles relate to fairness in taxation. First, the benefit principle suggests that those who gain more from public services should pay more in taxes. Second, the ability to pay principle states that taxes should be levied based on an individual's capacity to bear this burden, which usually means higher taxes for those with higher incomes.
When we consider economic equity, governments aim to promote fairness by possibly redistributing wealth to achieve a more balanced society. This might involve taxing the wealthy at higher rates and providing assistance like food stamps or education grants to lower-income families. In designing such a system, there is a trade-off between economic incentives and equality, as depicted in graphs such as Figure 15.10, where pushing too strongly for equality might reduce economic output.