Briefly and concisely define the following terms:
a. fiscal federalism
b. horizontal equity
c. vertical equity
d. benefits principle of taxation
a. Fiscal federalism is a system of intergovernmental transfers. The federal government makes various sorts of grants to state and local governments; and states make grants to municipalities and school districts, for example.
b. Horizontal equity is the notion that equally situated individuals should be taxed equally. This is very difficult to measure and implement in practice.
c. Vertical equity refers to the notion that differently situated individuals should be taxed differently in a way that society deems to be fair. One possible way to do so is progressive taxation, and another is to tax on the ability-to-pay principle.
d. The benefits principle of taxation holds that people who derive the benefits from services should pay the taxes that finance those services. Examples include the gasoline tax; the tax money is used to maintain and build highways and roads.
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Answer the following statement true (T) or false (F)