Ability to Pay
Barron's Finance & Investment Dictionary:
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Ability to Pay
Finance: borrower’s ability to meet principal and interest payments on long-term obligations out of earnings. Also called ability to service. See also fixed charge coverage.
Industrial relations: ability of an employer, especially a financial organization to meet a union’s financial demands from operating income.
Municipal bonds: issuer’s present and future ability to generate enough tax revenue to meet its contractual obligations, taking into account all factors concerned with municipal income and property values.
Taxation: the concept that tax rates should vary with levels of wealth or income; for example, the progressive income tax.
| Abeyance, Abandonment | |
| Abnormal Return, Above Par |
Investopedia Financial Dictionary:
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Ability to Pay
The principle that taxes should vary according to an individual's level of wealth or income.
Investopedia Says:
The application of this principle is a progressive tax system, which is considered to be characteristic of a socialist sentiment. Many hard-line classical economists like Adam Smith believed any elements of socialism would destroy the initiative of the population within a free market economy. However, many countries have blended capitalism and socialism with a great degree of success.
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Barron's Finance & Investment Dictionary
Dictionary of Finance and Investment Terms. Copyright © 2010 by Barron's Educational Series, Inc. All rights reserved.
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