In this essay, I will be examining the relevance of Adam’s Smith canons and justify what other attributes I believe a good tax system should have. Formally, tax is defined as an involuntary fee enforced by the government in order to finance its activities. However, some perceive tax as the price we pay to live in a civilised society and it is a fundamental part of any developed economy. (Oliver Wendell Holmes)
From my point of view, the purpose of tax is to fund the government, incentivise certain behaviour in order to achieve economic or societal aims and redistribution of income or welfare.
For a better understanding of what exactly constitutes a good tax system, the underlying principles will be differentiated by two categories: basic principles and procedural principles. The basic principles guide the government in designing a tax system and the procedural principles facilitate the implementation of those objectives. Adam Smith published in the “Wealth of Nations” four canons for an efficient tax system: equality, certainty (basic principles), convenience of payment and low cost of collection (procedural principles). Even though Adam Smith formulated these canons in the 18th century, they are still relevant and they informed my own framework. However, the way that they are implemented has changed in order to reflect the transformations of the society and economy. (Clinton Alley and Dunce Bentley)
One of the most debated basic principles of a good tax system, that is also present in Adam Smith canons, is fairness. The reason behind this debate is the loosen characteristic of the concept that is open to interpretation. The controversy of fairness is also amplified by its close connection with the ideology of redistribution of income from the wealthy to the poor and the justification behind progressive taxes. In my opinion fairness can be translated into horizontal and vertical equity. It seems only fair that two individuals with the same income and...
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