The Oxford Dictionary of Economics

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ability to pay

ability to pay
The principle that any tax should fall on those who can afford to pay. Paying for public goods or income redistribution requires taxes: taking account of ability to pay means that these should increase with the income or assets of taxpayers, and as some minimum consumption is needed for subsistence, taxes should be progressive rather than proportional. Ability to pay is oppposed to the benefit principle, which suggests that only those who benefit from any given public expenditure should be taxed to pay for it. The main objections to the ability to pay criterion are that it is hard to measure ability to pay reliably, and that taxing income reduces the incentive to work. However, collection of taxes from those who cannot afford to pay is unpopular, expensive, and sometimes impossible. Given the scale of taxes necessary to run a modern society, use of...

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