Trends in Growth, Equity and Opportunity: Canada · After peaks in 1920s and 30s, top shares fall from WWII to late 70s. 26 0 2 4 6 8 10 12 14 16 18 20 1920 1940 1960 1980 2000 2020
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Trends in Growth, Equity and Opportunity: Canada
Conference: Inclusive Prosperity: Recoupling Growth, Equity and Social Integration
Queen’s UniversityAugust 20, 2019
Mike Veall (veall@mcmaster.ca)Economics, McMaster University
productivity.partnership.ca
Acknowledgements: Zvez Todorov, Sara Kamala Anaraki, Anthony Hong (RAs), SSHRC (Productivity Partnership), Statistics Canada and Brian Murphy. Opinions are mine.
1
Main points:• Rise in Canadian income inequality a top-end
phenomenon during the 1980s and 1990s• Not sure if rise continues• Male but becoming somewhat less male• Important regional differences; cause?• Other types of inequality (wealth, health,
opportunity)• A mixed review on Canadian tax policy
responses to the income inequality rise
2
3
0%
5%
10%
15%
20%
25%
30%
35%
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Pre-Tax/Transfer Income Shares by Decile, Canada, 1982 to 2017
Statistics Canada: Canadian Income Survey
Top Decile
4
0%
5%
10%
15%
20%
25%
30%
35%19
8219
8419
8619
8819
9019
9219
9419
9619
9820
0020
0220
0420
0620
0820
1020
1220
1420
16
Pre-Tax/Transfer Income Shares by Decile, Canada, 1982 to 2017
Statistics Canada: Canadian Income Survey
Top DecileIncome share ≈ 0 for lowest decile
5
0%
5%
10%
15%
20%
25%
30%
35%19
8219
8419
8619
8819
9019
9219
9419
9619
9820
0020
0220
0420
0620
0820
1020
1220
1420
16
Pre-Tax/Transfer Income Shares by Decile, Canada, 1982 to 2017
Statistics Canada: Canadian Income Survey
Little change, entire period, lower 9 deciles
6
0%
5%
10%
15%
20%
25%
30%
35%
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Pre-Tax/Transfer Income Shares by Decile, Canada, 1982 to 2017
Statistics Canada: Canadian Income Survey
Increase, top decile, late 1980s + 1990s
7
0%
5%
10%
15%
20%
25%
30%
35%
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Pre-Tax/Transfer Income Shares by Decile, Canada, 1982 to 2017
Statistics Canada: Canadian Income Survey
Top decile share flattens, mid-2000s on
8
0%
5%
10%
15%
20%
25%
30%
35%19
8219
8419
8619
8819
9019
9219
9419
9619
9820
0020
0220
0420
0620
0820
1020
1220
1420
16
After-Tax/Transfer Income Shares by Decile, Canada, 1982 to 2017
Statistics Canada: Canadian Income Survey
Top Decile
9
0%
5%
10%
15%
20%
25%
30%
35%19
8219
8419
8619
8819
9019
9219
9419
9619
9820
0020
0220
0420
0620
0820
1020
1220
1420
16
After Tax/Transfer Income Shares by Decile, Canada, 1982 to 2017
Statistics Canada: Canadian Income Survey
Top DecileLowest decile up to 3% income share
10
0%
5%
10%
15%
20%
25%
30%
35%19
8219
8419
8619
8819
9019
9219
9419
9619
9820
0020
0220
0420
0620
0820
1020
1220
1420
16
After Tax/Transfer Income Shares by Decile, Canada, 1982 to 2017
Statistics Canada: Canadian Income Survey
Top DecileLittle change in lower 9 deciles
11
0%
5%
10%
15%
20%
25%
30%
35%19
8219
8419
8619
8819
9019
9219
9419
9619
9820
0020
0220
0420
0620
0820
1020
1220
1420
16
After Tax/Transfer Income Shares by Decile, Canada, 1982 to 2017
Statistics Canada: Canadian Income Survey
Slower increase for top decile
But switching from survey data to tax data (following Atkinson)…
1. Bigger increases at the top end2. Increases concentrated in the top 1% (and
the top 0.1% and the top 0.01%)e.g. 1982 to 2007, income after-tax/transfers:- top 10% (excluding the top 1%) share ↑ from
21.5% to 22.5%, 1 percentage point- top 1% share ↑ from 6.3% to 11.7%, 5.4
percentage points
12
Top Pre-tax/transfer incomesCanada, taxfiler basis, 2014
(2015, an up year, 2016 a down year)Threshold Average
Top 1% $227K $467K
Top 0.1% $726K $1.6M
Top 0.01% $2.7M $5.5M
Median income: $33K, Average Income: $45K13
25
02468
101214161820
1920 1940 1960 1980 2000 2020
Inco
me
Shar
e (p
erce
ntag
e)Top 1% Pre-Tax Transfer
Income Share, Canada 1929 to 2016
(Saez/Veall, AER, 2005, Veall, CJE, 2012 + updates, tax data)
02468
101214161820
1920 1940 1960 1980 2000 2020
Inco
me
Shar
e (p
erce
ntag
e)
Top 1% Pre-Tax/Transfer Income Share, Canada 1929 to 2016
(Saez/Veall, AER, 2005; Veall, CJE, 2012 + updates, aggregated/anonymized tax data)
After peaks in 1920s and 30s, top shares fall from WWII to late 70s
26
02468
101214161820
1920 1940 1960 1980 2000 2020
Inco
me
Shar
e (p
erce
ntag
e)Top 1% Pre-Tax/Transfer Income
Share, Canada 1929 to 2016
Rise 1980 to 2007
27
02468
101214161820
1920 1940 1960 1980 2000 2020
Inco
me
Shar
e (p
erce
ntag
e)
Top 1% Pre-Tax/Transfer Income Share, Canada 1929 to 2016
Most recently, roller coaster
Remarks:
• Top 1% results robust if 5 yr. moving averages used or family basis (1982 to 2016)
• Top 1% was 11% female in 1982; 24% by 2016 (Fortin, CJE, 2019: top decile contributes 79% to average gender pay gap)
• Median age of top 1%: 50 in 1982; 53 by 2016
• Regional:
- Murphy and Veall (2016, MQUP): half the
Canadian top income surge Toronto and Calgary
- Not suggesting causality but provinces
with bigger increases in top incomes, lower
growth in median incomes…
28
29
0
50
100
150
200
250
300
350
1980 1990 2000 2010 2020
Inco
me
(Nor
mal
ized
)Real Pre-Tax/Transfer Income,
Ontario, 1982 to 2016
Top 0.01% Top 0.1% Top 1%Average IncomeMedian Income
30
0
50
100
150
200
250
1980 1990 2000 2010 2020
Inco
me
(Nor
mal
ized
)Real Pre-Tax/Transfer Income,
Quebec, 1982 to 2016
Top 1%Average IncomeMedian Income
31
0
50
100
150
200
250
1980 1990 2000 2010 2020
Inco
me
(Nor
mal
ized
)Real Pre-Tax/Transfer Income,
Alberta, 1982 to 2016
Top 1%Average IncomeMedian Income
32
0
50
100
150
200
250
1980 1990 2000 2010 2020
Inco
me
(Nor
mal
ized
)Real Pre-Tax/Transfer Income,British Columbia 1982 to 2016
Top 1%Average IncomeMedian Income
34
0
50
100
150
200
1980 1990 2000 2010 2020
Inco
me
(Nor
mal
ized
)Real Pre-tax/transfer Income,New Brunswick, 1982-2016
Top 1%Average IncomeMedian Income
35
0
50
100
150
200
1980 1990 2000 2010 2020
Inco
me
(Nor
mal
ized
)Real Pre-Tax/Transfer Income, Newfoundland
and Labrador, 1982 to 2016
Top 1%
AverageIncomeMedianIncome
• Still mostly, median and average income increases not keeping up with productivity increases
• Variation across provinces (and countries) makes it hard to specify a single cause
36
• Data shortcomings: tax avoidance, tax havens• Canadian Controlled Private Corporations
(CCPCs)• Wolfson, Brooks, Murphy and Veall, Canadian
Tax Journal, 2016:- about 40% of top 1%, 60% of top 0.1% and
70% of top 0.01% have direct ownership in a CCPC (often more than one)
- if income attributed: top shares ↑ a fifth to a third (with a little more recent rise)
37
38
02468
101214161820
1920 1940 1960 1980 2000 2020
Inco
me
Shar
e (p
erce
ntag
e)
Top 1% Pre-Tax/Transfer Income Share, Canada 1929 to 2016
(Saez/Veall, AER, 2005; Veall, CJE, 2012 + updates, tax data)
Mostly shifting of dividends from CCPC owners with top 1% incomes
Other types of inequality (1)
• Wealth: Davies, Fortin and Lemieux (CJE, 2017) use StatCan Survey of Financial Security: wealth distribution stable
• Davies, Lluberas and Shorrocks (Global Wealth Databook, 2016): top 1% share is 25.6%
• Davies (Rev. Income Wealth, 1979): about 20%
39
Other types of inequality (2)• Health/Longevity: Milligan and Schirle, NBER,
2018: men in top two deciles live 8 years longer than men in bottom two deciles (for women, 3.6 year difference).
• Stable difference over time• Public Health Agency of Canada, 2018:
-Areas with Inuit concentration: 12 years lower longevity, 3 x higher infant mortality
-Areas with First Nations concentration, 11 years lower longevity, 2 x higher infant mortality
40
Other types of inequality (3)
• Inequality of opportunity: Corak (e.g. CPP/Adp, 2016):
- Canada has high estimated intergenerational mobility (higher thanSweden, trailing only Finland, Norway,Denmark)
- middle-of-the-pack estimated inequality - consequences for education, health policy?
41
43
02468
101214161820
1920 1940 1960 1980 2000 2020
Inco
me
Shar
e (p
erce
ntag
e)
Top 1% Pre-Tax/Transfer Income Share, Canada 1929 to 2016
(Saez/Veall, AER, 2005; Veall, CJE, 2012 + updates, tax data)
Mostly shifting of dividends from CCPC owners with top 1% incomes
44
0
50
100
150
200
250
300
350
1980 1990 2000 2010 2020
Inco
me
(Nor
mal
ized
)Real Pre-Tax/Transfer Income,
Ontario, 1982 to 2016
Top 0.01% Top 0.1% Top 1%Average IncomeMedian Income
Tax policy• Osberg (Lorimer, 2018): 65% top-end tax rate (+
other policies)• But top income taxes can change behaviour/some
intertemporal shifting• Combined federal/provincial tax rates at top close
to revenue maximization? Coordination issue?• Clear why top tax rate changes were followed up
with CCPC tax changes• Cut loopholes? Murphy, Veall, Wolfson, CTJ,
2015: some evidence tax preferences tend not to benefit the top 1% disproportionately exceptcapital income measures
45
Tentative Conclusions for Canada (1)1. The rise in income inequality is largely at top.
2. Top-end income inequality clearly rose in 80s and 90s: not so clear rise is continuing.
3. Top-end income inequality is male but becoming less so.
4. Top-end income inequality rise/level varies by region: provinces with slower top end rise tend to have more median income rise. Cause not clear.
46
Tentative Conclusions for Canada (2)5. Wealth inequality has risen somewhat.
Health inequality may not have. Canada scores well on estimated equality of opportunity.
47
Tentative Conclusions for Canada (3)6. Top end income tax rate changes have had
inconsistent effects. Shifting income through time, Canadian Controlled Private Corporations important.
7. Increased top-end tax rates may not yield much revenue. We’ll see.
8. Provincial/federal top rate issues.
48
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