Income Redistribution, Reranking, and Progressivity of Taxes and Transfers in Canada: An Ordinal Approach Using New Census Data

Wen-Hao Chen, Statistics Canada

This paper uses newly enhanced census data, which are augmented with predicted taxes, to examine the redistributive effect of the tax-transfer system in Canada. The large sample sizes provide statistical advantages and enable ordinal comparisons to establish social welfare rankings. The results of the redistributive effect are decomposed into vertical and horizontal components, to address both aspects of redistributive justice: vertical equity and horizontal equity. The effect of the vertical component is measured in terms of progressivity and is further decomposed into the contribution of tax and of separate transfer components to evaluate the significance of various state treatments. The effect of the horizontal component is assessed by whether there is reranking in the redistribution of incomes. This analysis is carried out for all 1981, 1991, and 2001 Census files. The extent to which state treatment is an important factor in explaining rising inequality over this period is also examined.