IDEAS home Printed from https://ideas.repec.org/p/stc/stcp3e/2006274e.html
   My bibliography  Save this paper

Revisiting Recent Trends in Canadian After-Tax Income Inequality Using Census Data

Author

Listed:
  • Green, David A.
  • Milligan, Kevin
  • Frenette, Marc

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 much of the changes in the income distribution have been in the tails. Our data are constructed from Census files, which are augmented with predicted taxes based on information available from administrative tax data. After validating our approach in predicting taxes on the Census files, we document differences in the levels and trends in after-tax inequality between the newly constructed data source and the more commonly used survey data. We find that after-tax inequality levels are substantially higher based on the new data, primarily because income levels are lower at the bottom than in survey data. The new data show 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

  • Green, David A. & Milligan, Kevin & Frenette, Marc, 2006. "Revisiting Recent Trends in Canadian After-Tax Income Inequality Using Census Data," Analytical Studies Branch Research Paper Series 2006274e, Statistics Canada, Analytical Studies Branch.
    • Handle: RePEc:stc:stcp3e:2006274e
    as

    Download full text from publisher

    File URL: https://www150.statcan.gc.ca/n1/en/catalogue/11F0019M2006274
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Susan Johnson, 1995. "More Evidence on the Effect of Higher Unemployment on the Canadian Size Distribution of Income," Canadian Public Policy, University of Toronto Press, vol. 21(4), pages 423-428, December.
    2. Paul Beaudry & David A. Green, 2003. "Wages and Employment in the United States and Germany: What Explains the Differences?," American Economic Review, American Economic Association, vol. 93(3), pages 573-602, June.
    3. Paul Beaudry & David A. Green, 2000. "Cohort patterns in Canadian earnings: assessing the role of skill premia in inequality trends," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 33(4), pages 907-936, November.
    4. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June.
    5. Fullerton, Don & Metcalf, Gilbert E., 2002. "Tax incidence," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 26, pages 1787-1872, Elsevier.
    6. Sen, Amartya, 2000. "Social justice and the distribution of income," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 1, pages 59-85, Elsevier.
    7. Lars Osberg, 2003. "Long Run Trends in Income Inequality in the United States, UK, Sweden, Germany and Canada: A Birth Cohort View," Eastern Economic Journal, Eastern Economic Association, vol. 29(1), pages 121-141, Winter.
    8. Picot, Garnett & Green, David A. & Frenette, Marc, 2004. "Rising Income Inequality in the 1990s: An Exploration of Three Data Sources," Analytical Studies Branch Research Paper Series 2004219e, Statistics Canada, Analytical Studies Branch.
    9. Emmanuel Saez & Michael R. Veall, 2005. "The Evolution of High Incomes in Northern America: Lessons from Canadian Evidence," American Economic Review, American Economic Association, vol. 95(3), pages 831-849, June.
    10. Wolfson, Michael & Murphy, Brian B, 1998. "New Views on Inequality Trends in Canada and the United States," Analytical Studies Branch Research Paper Series 1998124e, Statistics Canada, Analytical Studies Branch.
    11. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Green, David A. & Riddell, W. Craig, 2013. "Ageing and literacy skills: Evidence from Canada, Norway and the United States," Labour Economics, Elsevier, vol. 22(C), pages 16-29.
    2. Wen-Hao Chen & John Myles & Garnett Picot, 2012. "Why Have Poorer Neighbourhoods Stagnated Economically while the Richer Have Flourished? Neighbourhood Income Inequality in Canadian Cities," Urban Studies, Urban Studies Journal Limited, vol. 49(4), pages 877-896, March.
    3. Frenette, Marc, 2007. "Why Are Youth from Lower-income Families Less Likely to Attend University? Evidence from Academic Abilities, Parental Influences, and Financial Constraints," Analytical Studies Branch Research Paper Series 2007295e, Statistics Canada, Analytical Studies Branch.
    4. Heisz, Andrew, 2007. "Income Inequality and Redistribution in Canada: 1976 to 2004," Analytical Studies Branch Research Paper Series 2007298e, Statistics Canada, Analytical Studies Branch.
    5. Frenette, Marc, 2007. "Pourquoi les jeunes provenant de familles a plus faible revenu sont-ils moins susceptibles de frequenter l'universite? Analyse fondee sur les aptitudes aux etudes, l'influence des parents et les contr," Direction des études analytiques : documents de recherche 2007295f, Statistics Canada, Direction des études analytiques.
    6. Claire Lebarz, 2015. "Income Inequality and Household Debt Distribution: A Cross-Country Analysis using Wealth Surveys," LWS Working papers 20, LIS Cross-National Data Center in Luxembourg.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2005. "Trends in U. S. Wage Inequality: Re-Assessing the Revisionists," Harvard Institute of Economic Research Working Papers 2095, Harvard - Institute of Economic Research.
    3. Brahim Boudarbat & Thomas Lemieux & W. Craig Riddell, 2010. "The Evolution of the Returns to Human Capital in Canada, 1980-2005," Canadian Public Policy, University of Toronto Press, vol. 36(1), pages 63-89, March.
    4. Christian Dustmann & Johannes Ludsteck & Uta Schönberg, 2009. "Revisiting the German Wage Structure," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(2), pages 843-881.
    5. Michael R. Smith, 2001. "Technological Change, the Demand for Skills, and the Adequacy of their Supply," Canadian Public Policy, University of Toronto Press, vol. 27(1), pages 1-22, March.
    6. Alexandra Spitz-Oener, 2006. "Technical Change, Job Tasks, and Rising Educational Demands: Looking outside the Wage Structure," Journal of Labor Economics, University of Chicago Press, vol. 24(2), pages 235-270, April.
    7. Lars Osberg, 2003. "Long Run Trends in Income Inequality in the United States, UK, Sweden, Germany and Canada: A Birth Cohort View," Eastern Economic Journal, Eastern Economic Association, vol. 29(1), pages 121-141, Winter.
    8. Picot, Garnett & Myles, John, 2005. "Income Inequality and Low Income in Canada: an International Perspective," Analytical Studies Branch Research Paper Series 2005240e, Statistics Canada, Analytical Studies Branch.
    9. Gueorgui Kambourov & Iourii Manovskii, 2000. "Occupational Mobility and Wage Inequality, Second Version," PIER Working Paper Archive 04-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 15 Jun 2004.
    10. Lex Borghans & Bas ter Weel, 2008. "Understanding the Technology of Computer Technology Diffusion: Explaining Computer Adoption Patterns and Implications for the Wage Structure," Journal of Income Distribution, Ad libros publications inc., vol. 17(3-4), pages 37-70, September.
    11. Cabral, René & García-Díaz, Rocío & Mollick, André Varella, 2016. "Does globalization affect top income inequality?," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 916-940.
    12. Pablo Acosta & Leonardo Gasparini, 2007. "Capital Accumulation, Trade Liberalization, and Rising Wage Inequality: The Case of Argentina," Economic Development and Cultural Change, University of Chicago Press, vol. 55(4), pages 793-812, July.
    13. Richard Burkhauser & Shuaizhang Feng & Stephen Jenkins & Jeff Larrimore, 2011. "Estimating trends in US income inequality using the Current Population Survey: the importance of controlling for censoring," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 9(3), pages 393-415, September.
    14. Kelly Foley & David A. Green & W. Craig Riddell, 2024. "Canadian inequality over the last 40 years: common and contrary variations on universal themes," Fiscal Studies, John Wiley & Sons, vol. 45(2), pages 119-130, June.
    15. David A. Green & James Townsend, 2010. "Understanding the wage patterns of Canadian less skilled workers: the role of implicit contracts," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(1), pages 373-403, February.
    16. Facundo Alvaredo & Guillermo Cruces & Leonardo Gasparini, 2018. "A short episodic history of income distribution in Argentina," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 27(1), pages 1-45, December.
    17. Bellmann, Lutz & Gartner, Hermann, 2003. "Fakten zur Entwicklung der qualifikatorischen und sektoralen Lohnstruktur (Facts on the development of the qualification-related and sectoral wage structure)," Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 36(4), pages 493-508.
    18. Audra Bowlus & Émilien Gouin‐Bonenfant & Huju Liu & Lance Lochner & Youngmin Park, 2022. "Four decades of Canadian earnings inequality and dynamics across workers and firms," Quantitative Economics, Econometric Society, vol. 13(4), pages 1447-1491, November.
    19. Daron Acemoglu, 2003. "Cross-Country Inequality Trends," Economic Journal, Royal Economic Society, vol. 113(485), pages 121-149, February.
    20. Kenyon Bolton & Sébastien Breau, 2012. "Growing Unequal? Changes in the Distribution of Earnings across Canadian Cities," Urban Studies, Urban Studies Journal Limited, vol. 49(6), pages 1377-1396, May.

    More about this item

    Keywords

    Household; family and personal income; Income; pensions; spending and wealth; Low income and inequality;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:stc:stcp3e:2006274e. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mark Brown (email available below). General contact details of provider: https://edirc.repec.org/data/stagvca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.