The Idea That Two Taxpayers in the Same Economic Circumstances

question 156

Multiple Choice

The idea that two taxpayers in the same economic circumstances should pay the same level of taxes is known as the

• A)ability-to-pay principle.
• B)vertical-equity principle.
• C)horizontal-equity principle.
• D)benefits-received principle.

---

Definitions:

MM Model

Refers to the Modigliani-Miller theorem, which proposes that under certain market conditions and assumptions, the value of a firm is unaffected by its capital structure.

Bankruptcy Risk

The likelihood that a company will be unable to meet its financial obligations and may have to declare bankruptcy.

Debt Financing

Raising funds through borrowing, typically by issuing bonds or taking out loans, which must be repaid at a later date, usually with interest.

Cash Preservation

The practice of managing resources to ensure sufficient liquidity and minimize financial risk.