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The tale of the tails: Canadian income inequality in the 1980s and 1990s

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  • Marc Frenette
  • David A. Green
  • Kevin Milligan

Abstract

We present new evidence on levels and trends in after-tax income inequality in Canada between 1980 and 2000. We argue that existing data sources may miss changes in the tails of the income distribution, and that many of the changes in the income distribution have been in the tails. For this reason, we turn to an alternative source. In particular, we construct data on after-tax and transfer income using Census files augmented with predicted taxes based on information available from administrative tax data. Using these data, we find that Canadian after-tax inequality levels are substantially higher than has been previously recognized, primarily because income levels are lower at the bottom of the distribution than in commonly used survey data. We also find larger long-term increases in after-tax income inequality and far more variability over the economic cycle. This raises interesting questions about the role of the tax and transfer system in mitigating both trends and fluctuations in market income inequality.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 40 (2007)
Issue (Month): 3 (August)
Pages: 734-764

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Handle: RePEc:cje:issued:v:40:y:2007:i:3:p:734-764

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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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Cited by:
  1. Brozozowski, Matthew & Gervais, Martin & Klein, Paul & Suzuki, Micho, 2009. "Consumption, income, and wealth inequality in Canada," Discussion Paper Series In Economics And Econometrics 0904, Economics Division, School of Social Sciences, University of Southampton.
  2. Osberg, Lars, 2013. "Instability implications of increasing inequality: Evidence from North America," Economic Modelling, Elsevier, vol. 35(C), pages 918-930.
  3. Matthew Brzozowski & Martin Gervais & Paul Klein & and Michio Suzuki, 2009. "Dimensions of Inequality in Canada," IMES Discussion Paper Series 09-E-02, Institute for Monetary and Economic Studies, Bank of Japan.
  4. Kevin Milligan, 2007. "The Evolution of Elderly Poverty in Canada," Social and Economic Dimensions of an Aging Population Research Papers 170, McMaster University.
  5. Michael R. Veall, 2008. "Canadian Seniors and the Low Income Measure," Canadian Public Policy, University of Toronto Press, vol. 34(s1), pages 47-58, November.

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