Top-End Progressivity and Federal Tax Preferences in Canada: Estimates from Personal Income Tax Data

This article presents a first step toward consideration of how tax preferences may affect the progressivity of the Canadian federal personal income tax system at the top end. The authors consider 60 tax expenditures listed by the Department of Finance and use taxfiler data to attribute the shares to the top 1 percent, top 0.1 percent, and top 0.01 percent of income recipients. The Department of Finance estimates are made under the assumption of no behavioural change. The authors relax this slightly by assuming that behavioural change does not vary by income group. They define a tax preference as top-end progressive if the share of the preference's benefits received by top income recipients is less than their income share. Most tax expenditures are estimated to be top-end progressive except, as expected, those involving capital income and stock options. Similar findings hold for an alternative definition of top-end progressive based on tax payments. The results are consistent with those for the United States by Nguyen, Nunns, Toder, and Williams (2012) and Brown, Gale, and Looney (2012).