Equity in Economics

Equity in economics is defined as the process to be fair in an economy that can range from the concept of taxation to welfare in the economy. It also means how the income and opportunity among people are evenly distributed.

• Equity in economics is the method of being fair in an economy that can range from taxation to welfare in the economy. In addition, it also tells how income and opportunity among people are evenly distributed.
• Every nation must have a common economic objective: fair and even income distribution and opportunity among people. The lack of equity creates a possibility of inequality in the market. 
• Horizontal equity and vertical equity are the two types of equity in economics.

Every nation should have a common economic objective, defined as being fair and even in distributing income and opportunity among people. The absence of equity creates a scope of inequality in the market.

For example, in a monopoly market where there is only a single buyer, the other people sell their labor at a much cheaper rate than a competitive market where there is a lot to buy, and wages are very competitive. Income difference is one of the most common problems an economy must face when there is no equity.

There are primarily two types of equity in economics: Horizontal equity and Vertical equity.

#1 - Horizontal Equity

In this economic environment, everyone is treated equally, and there is no scope for special treatments or discrimination based on caste/creed/gender/race/profession. An example to support this can suppose two persons are earning $10,000. Both the person must pay the same amount of tax, and there should be no discrimination between the two. Thus, the type of economy demands a system of tax where there is no discrimination, and no special treatment is given to individuals or companies.

#2 - Vertical Equity

Vertical equity is more concerned with redistributing the earned income of common people among the others in the society utilizing tax and taxation rules. It means a person earning more should also pay more tax or redistribute their income as tax. This type of equity calls for advanced or progressive taxation laws. An example to support vertical equity is like the tax laws where taxes contribute to the sheer amount. Here the person earning more must pay more tax and vice versa.

• Tax can be one of the most important examples of equity in the economy. Horizontal equity is applicable among people belonging to the same level of income group where irrespective of caste/creed/gender/profession, one must pay a certain amount of tax as defined by the taxation authority.
• Here, no special treatment is given to anyone, or any discrimination is brought in. Similarly, when discussing vertical equity, the same tax laws are different for a certain level of income groups, and income tax slabs explain these. For example, a person within a certain range of income considered quite low will pay comparatively less tax than the other person who is earning very well and eventually will shell out more in the form of excess tax paid.
• Vertical equity is more concerned with redistributing the earned income of common people among the others in the society utilizing tax and taxation rules. This type of equity calls for advanced or progressive taxation laws. Vertical equity is more dependent on the principle where the base is more into a progressive rate of tax or proportionality.

• The prime aim of implementing equity in economies is to prevent the inequality of income based on gender/caste/creed or any other determining factors.
• Policies that boost equity in the economy can promote social bonding and to a great extent curb chances of any political conflict.
• It can stimulate long-term growth for the economy, which can serve as a stimulus to the eradication of poverty present in a nation.
• Equity among people or workplaces can enhance productivity, and they are in a better position to contribute socially and economically to the community.
• It instills confidence among all where every individual stays motivated because no discrimination has been made based on caste/creed/gender.
• Equity in the economy gives equal life chances with no discrimination based on factors for which people cannot be considered responsible.
• It also brings about a concept of meritocracy where people get rewarded or awarded based on their merit rather than any other influence.
• Implementation of a fair, competitive market where companies are not often cheating their customers who buy the goods or services.
• It also allocates the goods and services based on the people's actual requirements or needs, focusing on the necessity of the goods and services.
• Provision of public services based on fair treatment to the consumers where public amenities are charged on an equal basis from others irrespective of their caste/creed/gender or profession.
• It brings about social protection to check no community is going below a certain benchmark of well being as this will create scope of inequality or disadvantage to others.
• Progressive taxation helps redistribute the income properly where staple goods necessary for all may be taxed less, and an imported car considered a luxury might be taxed very high.
• Supporting the lower-income segment and uplifting those communities beyond the poverty line is also a major task that equity in economies targets.

•  Equity in the economy is an important factor in keeping common people happy and motivated. It also has several benefits that have been discussed already. Both horizontal and vertical equity plays a major role in the economy. Vertical equity is the process of redistribution of income where people earning more are taxed more.
• Involves progressive rates of tax and proportionality. When compared to horizontal equity, vertical taxes are more achievable and result-oriented, and there are many loopholes associated with the horizontal tax. The opposite of equity in an economy is termed inequality, and equity economies play a crucial role in removing inequality from the economy.

This has been a guide to What is Equity in Economics & its Definition. Here we discuss the types of equity in the economy and why equity is important in economics, along with examples. You can learn more about from the following articles –

• Economic Stimulus Package
• Keynesian Economics
• Homo Economicus
• Economic Depreciation
• Applied Economics