Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

Equal Absolute Sacrifice: Total utility sacrificed by both the 
individuals must be the same. Thus, the rich (B) will be taxed KB 
and the poor (A) will be taxed GA, so that the total utilities 
sacrificed, DM = EL, being the same for both. Obviously: KB >GA, 
but KB + GA = TB. 
Equal Proportional Sacrifice: The rich has to pay NB amount, while 
the poor IA amount. However, the proportion of utilities sacrificed 
by both is the same: 
 
Equal Marginal Sacrifice: Both the individual will be so taxed that 
their marginal utilities sacrificed are the same. Thus, the rich will 
pay QB, and the poor will pay QA as tax. Both have equal marginal 
sacrifice amounting to QR. Evidently, QB > NB, while QA < IA, 
which obviously means a relatively high progressive tax on the rich. 
(ii) Objective Approach 
The objective approach considers the money value of the taxable 
capacity of each tax-payer than his psychology of sacrifice and 
feelings. There are many indices to measure taxable capacity, such 
as income, wealth and property, consumption, etc.
Income: It has been the most widely accepted measure of ability to 
pay. For this purpose, according to Musgrave‘s, income should be 
defined broadly so as to include all forms of accumulation, 
independent of the sources from which it is derived and the uses to 
which it is put. Income has served as the base of personal taxation 
under income tax. 
( )
( )
U Y
f Y
DP
EH
DC
EF

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Consumption expenditure: It is an alternative measure of ability 
to pay. The consumption base has been used in sales and excise 
taxes. It can be used as a base for expenditure tax as well as for 
personal and progressive taxation. 
Wealth: It is also used as an index of ability to pay. If we view 
wealth as the capitalized value of capital income, a tax on wealth 
would impose a tax on capital income. However, the consumption 
base would exclude capital income form the income tax.