Discussion
Which of the following statements is true in case of the principle of equal marginal sacrifice ?
Answer: C
Under equal marginal sacrifice, the post-tax marginal utility of income is the same for everyone.
The principle of equal marginal sacrifice (minimum aggregate sacrifice) arranges taxes so that the last rupee taken from each taxpayer causes the same loss of utility. With diminishing marginal utility of income, this means taking income from the richest first until their marginal utility of income, after tax, equals that of the others.
Equal absolute loss of utility for everyone is the principle of equal absolute sacrifice. Pre-tax marginal utilities differ between rich and poor, which is why taxation is needed to equalise them, and the marginal utility of commodities is not the measure used.
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