![]() What is the nature of the trade-off between efficiency and equity? This definition remains, therefore, an important source of theoretical support for certain departures from the SHS comprehensive tax base. Nevertheless, many particular features of income tax systems are based in practice on something that seems closer to Hicks’s definition than to that of SHS. ![]() But it is the business of the theoretical economist to be able to criticize the practice of such authorities he has no right to be found in their company himself! 3 The best thing he can do is to follow the practice of the income tax authorities. Indeed, in commenting on the difficulty that would be faced by a statistician who might seek to apply his definition in measuring the social income in an economy, Hicks advised that: Hicks was, explicitly, not proposing a definition for use as a practical basis for an income tax. The obvious difference between the SHS definition and that of Hicks is the importance that the latter accords to the subjective expectations of the individual. In subsequent writings, Hicks offered an alternative, broad definition of an individual’s income in a given week as “the maximum value which he can consume during a week, and still expect to be as well off at the end of the week as he was at the beginning.” Elaborating on the concept of “well-offness” in this broad definition, he reformulated the definition as “the maximum amount of money which the individual can spend this week, and still expect to be able to spend the same amount in real terms in each ensuing week.” 2 Since the SHS definition brings changes in wealth within the income definition, on a par with such services, it is commonly referred to as a definition of “comprehensive income.” A central feature of this definition is that it requires appropriate procedures for valuing “wealth” at the beginning and at the end of the income period. ![]() In general, however, they had been based on an underlying concept of income as a flow (or yield) of services from specific sources-sepa-rate and distinct from any changes in those sources themselves. Such taxes had already been in existence in some countries, of course, for many years. All three writers were concerned to find a measurable concept which would serve as an adequate basis for a personal income tax system. von Schanz (1896), and so this is often referred to as the Schanz-Haig-Simons (SHS) definition. Similar definitions had been advanced in earlier writings by R.M. In other words, it is merely the result obtained by adding consumption during the period to “wealth” at the end of the period and then subtracting “wealth” at the beginning. The algebraic sum of: (1) the market value of rights exercised in consumption and (2) the change in the value of the store of property rights between the beginning and end of the period in question. In what is probably the most influential definition of the personal income of an individual, in a particular period of time, Henry Simons asserted it to be the following:
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