Equity (economics)

Equity (economics)

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Encyclopedia
Equity is the concept or idea of fairness in economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

, particularly as to taxation or welfare economics. More specifically it may refer to equal life chances
Equal opportunity
Equal opportunity, or equality of opportunity, is a controversial political concept; and an important informal decision-making standard without a precise definition involving fair choices within the public sphere...

 regardless of identity, to provide all citizens with a basic minimum of income/goods/services or to increase funds and commitment for redistribution.

Overview


Inequality and inequities have significantly increased of recent decades, possibly driven by the worldwide economic processes of globalisation, economic liberalisation and integration. This has led to states ‘lagging behind’ on headline goals such as the Millennium Development Goals
Millennium Development Goals
The Millennium Development Goals are eight international development goals that all 193 United Nations member states and at least 23 international organizations have agreed to achieve by the year 2015...

 (MDGs) and different levels of inequity between states have been argued to have played a role in the impact of the global economic crisis of 2008-2009.

Equity is based on the idea of moral equality
Equality
Equality may refer to:Social concepts* Egalitarianism, the belief that all/some people ought to be treated equally* Equality before the law* Equal opportunity* Equality of outcome or equality of condition* Gender equality* Racial equality...

. Equity looks at the distribution of capital, goods and access to services throughout an economy and is often measured using tools such as the Gini index. Equity may be distinguished from economic efficiency in overall evaluation of social welfare. Although 'equity' has broader uses, it may be posed as a counterpart to economic inequality
Economic inequality
Economic inequality comprises all disparities in the distribution of economic assets and income. The term typically refers to inequality among individuals and groups within a society, but can also refer to inequality among countries. The issue of economic inequality is related to the ideas of...

 in yielding a "good" distribution
Distribution (economics)
Distribution in economics refers to the way total output, income, or wealth is distributed among individuals or among the factors of production .. In general theory and the national income and product accounts, each unit of output corresponds to a unit of income...

 of wealth. It has been studied in experimental economics
Experimental economics
Experimental economics is the application of experimental methods to study economic questions. Data collected in experiments are used to estimate effect size, test the validity of economic theories, and illuminate market mechanisms. Economic experiments usually use cash to motivate subjects, in...

 as inequity aversion
Inequity aversion
Inequity aversion is the preference for fairness and resistance to incidental inequalities. The social sciences that study inequity aversion include sociology, economics, psychology, anthropology and ethology.-Human studies:...

. Low levels of equity are associated with life chances based on inherited wealth, social exclusion and the resulting poor access to basic services and intergenerational poverty resulting in a negative effect on growth
Growth
Growth refers to an increase in some quantity over time.The quantity can be:*Physical *Abstract ....

, financial instability, crime and increasing political instability.

The state often plays a central role in the necessary redistribution required for equity between all citizens, but applying this in practise is highly complex and involves contentious choices. However, considerable consensus can often be found on three particular issues:
  1. Equal life chances: life outcomes should be determined by individual choices and not conditions beyond an individual's control.
  2. Equal concern for people’s needs: those goods and services understood as necessities should be distributed to those otherwise unable to access them.
  3. Meritocracy: positions in society and rewards should reflect differences in effort and ability, based on fair competition.


Economists distinguish between three types of equities: universal equity measured through an inequity index, compensatory equity applies where universal equity cannot be achieved, and status equity illustrated by the special care delivered to war veterans, the handicapped, or the supplementary protection to diplomats and representatives of international intergovernmental organizations, under the Vienna Convention.

Taxation


In public finance
Public finance
Public finance is the revenue and expenditure of public authoritiesThe purview of public finance is considered to be threefold: governmental effects on efficient allocation of resources, distribution of income, and macroeconomic stabilization.-Overview:The proper role of government provides a...

 horizontal equity is the idea that people with a similar ability to pay taxes should pay the same or similar amounts. It is related to the concept of tax neutrality or the idea that the tax system should not discriminate between similar things or people, or unduly distort behavior.

Vertical equity usually refers to the idea that people with a greater ability to pay taxes should pay more. If the rich pay more in proportion to their income, this is known as a proportional tax; if they pay an increasing proportion, this is termed a progressive tax
Progressive tax
A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate...

, sometimes associated with redistribution of wealth.

Health care


Horizontal equity means providing equal healthcare to those who are the same in a relevant respect (such as having the same 'need'). Vertical equity means treating differently those who are different in relevant respects (such as having different 'need'), (Culyer, 1995).

Health studies of equity seek to identify whether particular social groups receive systematically different levels of care than do other groups. There are many ways to identify preventable or unjust disparities, including the study of health outcomes using quintile
Quintile
Quintile may refer to:*Income quintiles, a division of households by income into five quantiles*Quintiles, a biotechnology research company based in the United States...

 analysis or concentration indexes.

Fair division


Equitability in fair division
Fair division
Fair division, also known as the cake-cutting problem, is the problem of dividing a resource in such a way that all recipients believe that they have received a fair amount...

 means every person’s subjective valuation of their own share of some goods is the same. The surplus procedure
Surplus procedure
The surplus procedure is a fair division protocol for dividing goods in a way that achieves proportional equitability. It can be generalized to more than 2 people and is strategyproof. For 3 or more people it is not always possible to achieve a division that is both equitabile and envy-free.The...

 (SP) achieves a more complex variant called proportional equitability. For more than 2 people a division cannot always both be equitable and envy-free
Envy-free
In mathematical sociology and especially game theory, envy-free is a property of certain fair division algorithms for a divisible heterogeneous good over which different players may have different preferences....

.