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Main article: Theory of taxation |
The details of taxation are guided by two principles: the benefit principle and the ability to pay principle.[1]
Main article: Benefit principle |
Under the benefit theory, tax levels are automatically determined, because taxpayers pay proportionately for the government benefits they receive. In other words, the individuals who benefit the most from public services pay the most taxes.[2] In analyzing the benefit approach, two models have been discussed: the Lindahl model and the Bowen model.[3]
The ability-to-pay approach treats government revenue and expenditures separately.[4] Taxes are based on taxpayers’ ability to pay; there is no quid pro quo. Taxes paid are seen as a sacrifice by taxpayers, which raises the issues of what the sacrifice of each taxpayer should be and how it should be measured.[5]