Lump-sum tax

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A lump-sum tax is a tax that is fixed in amount no matter what the change in circumstance of the taxed entity. (A lump-sum subsidy or lump-sum redistribution is defined similarly.) An example is a poll tax to vote, which is unchanged no matter what the income of the voter. In economic theory, a lump-sum tax may have the advantage of not contributing to an excess burden of taxation, a loss in economic efficiency that results from taxes reducing incentives for production. In practice, lump-sum taxes are rarely encountered, because they may conflict with other criteria, such as equity or ability to pay. But such a tax remains a standard for measuring the performance of other imperfect kinds of taxes (J. de V. Graaf, 1987).

It is easy to see how lump-sum taxes conflict with equity standards. They are highly regressive in terms of proportion of income: as the tax is fixed and independente of income, the lower the income, the higher will be the percentage of taxed income.