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Trends in Growth, Equity and Opportunity: Canada Conference: Inclusive Prosperity: Recoupling Growth, Equity and Social Integration Queen’s University August 20, 2019 Mike Veall ([email protected] ) 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
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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

Oct 29, 2019

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Page 1: 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

Trends in Growth, Equity and Opportunity: Canada

Conference: Inclusive Prosperity: Recoupling Growth, Equity and Social Integration

Queen’s UniversityAugust 20, 2019

Mike Veall ([email protected])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.

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Page 2: 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

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

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Page 3: 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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0%

5%

10%

15%

20%

25%

30%

35%

1982

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1996

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2000

2002

2004

2006

2008

2010

2012

2014

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Pre-Tax/Transfer Income Shares by Decile, Canada, 1982 to 2017

Statistics Canada: Canadian Income Survey

Top Decile

Page 4: 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

4

0%

5%

10%

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Pre-Tax/Transfer Income Shares by Decile, Canada, 1982 to 2017

Statistics Canada: Canadian Income Survey

Top DecileIncome share ≈ 0 for lowest decile

Page 5: 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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0%

5%

10%

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35%19

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Pre-Tax/Transfer Income Shares by Decile, Canada, 1982 to 2017

Statistics Canada: Canadian Income Survey

Little change, entire period, lower 9 deciles

Page 6: 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

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

Page 7: 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

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

Page 8: 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

8

0%

5%

10%

15%

20%

25%

30%

35%19

8219

8419

8619

8819

9019

9219

9419

9619

9820

0020

0220

0420

0620

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1020

1220

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After-Tax/Transfer Income Shares by Decile, Canada, 1982 to 2017

Statistics Canada: Canadian Income Survey

Top Decile

Page 9: 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

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

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After Tax/Transfer Income Shares by Decile, Canada, 1982 to 2017

Statistics Canada: Canadian Income Survey

Top DecileLowest decile up to 3% income share

Page 10: 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

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

Page 11: 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

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

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After Tax/Transfer Income Shares by Decile, Canada, 1982 to 2017

Statistics Canada: Canadian Income Survey

Slower increase for top decile

Page 12: 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

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

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Page 13: 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

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

Page 14: 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

Did Canadians

notice the riseof the

top one per cent?

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Page 15: 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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Page 16: 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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Page 17: 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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Page 18: 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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Page 19: 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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Page 20: 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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Page 21: 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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Page 22: 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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Page 23: 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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Page 24: 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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Page 25: 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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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

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Shar

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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

Page 26: 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

26

02468

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Inco

me

Shar

e (p

erce

ntag

e)Top 1% Pre-Tax/Transfer Income

Share, Canada 1929 to 2016

Rise 1980 to 2007

Page 27: 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

27

02468

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1920 1940 1960 1980 2000 2020

Inco

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Shar

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Top 1% Pre-Tax/Transfer Income Share, Canada 1929 to 2016

Most recently, roller coaster

Page 28: 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

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…

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Page 29: 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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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

Page 30: 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

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

Page 31: 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

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

Page 32: 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

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

Page 33: 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

but in contrast

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Page 34: 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

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

Page 35: 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

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

Page 36: 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

• 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

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Page 37: 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

• 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)

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Page 38: 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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02468

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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

Page 39: 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

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%

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Page 40: 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

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

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Page 41: 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

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?

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Page 42: 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

Back to income inequality:- income tax policy …

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Page 43: 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

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

Page 44: 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

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

Page 45: 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

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

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Page 46: 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

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.

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Page 47: 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

Tentative Conclusions for Canada (2)5. Wealth inequality has risen somewhat.

Health inequality may not have. Canada scores well on estimated equality of opportunity.

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Page 48: 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

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.

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Page 49: 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

questions/ suggestions / commentsmost welcome

Thank you!

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