Equity considerations- fairness is also importantVertical equity- it should distribute burdens fairly across people with differentability to pay- X: bread (more inelastically demanded) Y: caviar- optimal taxation may require a higher tax rate on bread than caviar- if bread is taxed at a lower rate, a relatively large excess burden iscreated but income is also redistributed toward the poor- society may be willing to pay the price of a higher excess burdenin return for a more equal distribution of incomeIncome elasticityif elasticity small- proportional or regressive tax, ex. bread- lowertax rateif elasticity large- progressive tax, ex. caviar- higher tax rat