What does horizontal equity refer to in the context of taxation?

Horizontal equity in taxation is grounded in the principle that individuals with equal income should pay the same amount in taxes. This concept ensures fairness by treating like taxpayers in a similar manner, reflecting the idea that people with the same financial capacity should contribute equally to the funding of government services and obligations.

This principle promotes a sense of justice and equity within the tax system, as it avoids disparities that can arise when different individuals in the same financial situation are taxed at different rates. It advocates for uniformity in tax obligations among peers, hence reinforcing the belief that identical economic situations should lead to identical tax responsibilities.

In this context, horizontal equity is distinct from vertical equity, which addresses how taxpayers with differing incomes should be taxed differently, typically at progressively higher rates. The other options do not align with the definition of horizontal equity, thereby highlighting its focus on equal treatment for individuals with equal earning capabilities.