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

Author

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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.

Suggested Citation

  • Marc Frenette & David A. Green & Kevin Milligan, 2007. "The tale of the tails: Canadian income inequality in the 1980s and 1990s," Canadian Journal of Economics, Canadian Economics Association, vol. 40(3), pages 734-764, August.
  • Handle: RePEc:cje:issued:v:40:y:2007:i:3:p:734-764
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    Citations

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    Cited by:

    1. repec:bla:econom:v:84:y:2017:i:333:p:104-127 is not listed on IDEAS
    2. Sébastien Breau & David L. Rigby, 2010. "International trade and wage inequality in Canada," Journal of Economic Geography, Oxford University Press, vol. 10(1), pages 55-86, January.
    3. 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.
    4. Biewen, Martin & Ungerer, Martin & Löffler, Max, 2016. "Trends in the German income distribution: 2005/06 to 2010/11," ZEW Discussion Papers 16-088, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. Osberg, Lars, 2013. "Instability implications of increasing inequality: Evidence from North America," Economic Modelling, Elsevier, vol. 35(C), pages 918-930.
    6. Ostrovsky Yuri, 2010. "Long-Run Earnings Inequality and Earnings Instability among Canadian Men Revisited, 1985-2005," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-34, March.
    7. Kevin Milligan, 2008. "The Evolution of Elderly Poverty in Canada," Canadian Public Policy, University of Toronto Press, vol. 34(s1), pages 79-94, November.
    8. 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.
    9. Charles M. Beach & Ross Finnie & David Gray, 2010. "Long-Run Inequality And Short-Run Instability Of Men'S And Women'S Earnings In Canada," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(3), pages 572-596, September.
    10. Marcelin Joanis & Edgard Rodriguez, 2013. "Public Redistribution and Inequality in a Period of Fiscal Consolidation: A Decomposition Analysis for Canada in the 1980s and 1990s," Economic Papers, The Economic Society of Australia, vol. 32(2), pages 218-238, June.
    11. 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.

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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