fiscal neutrality

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The aim of devising a fiscal system which does not cause distortions in the economy. For example, if the tax system allows firms to write off some types of equipment faster than others with a similar actual life, this tends to divert investment into the types of equipment benefiting from more generous allowances. Fiscal neutrality aims to avoid this type of incentive, and is often proposed as a desirable property of a tax system.

Subjects: Economics.

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