IMPACT OF TAX, TRANSFER, AND EXPENDITURE POLICIES OF GOVERNMENT ON THE DISTRIBUTION OF PERSONAL INCOME IN CANADA

Abstract

This is a study of the first order incidence of government taxation and expenditure policies on the incomes of families and unattached individuals in Canada in 1970. The specific purposes of the study are twofold. The first is to estimate for calendar year 1970 the first order incidence of governments’actual tax, transfer, and expenditure policies on spending units. The second objective is to simulate the changes in this incidence that would have occurred in 1970 if the new federal personal income tax, unemployment insurance, old age sccurity and family allowance programs had been in operation during that year. The methodology is similar to that used by W. Irwin Gillespie in his pioneering 1964 study for the Royal Commission on Taxation.It is concluded that the 1970 incidence of the combined tax and transfer programs of all levels of government is broadly redistributive, with net incidence of federal government programs being considerably more redistributive than that of provincial and local governments. In general, the public sector provides large net benefits to families and individuals with incomes of less than $4,000, declining net benefits to families earning from $4,000 to $11,000 and levies small but increasing levels of net tax on families and individuals with incomes in excess of $11,000. This general conclusion is relatively insensitive to the precise assumptions made about the shifting of taxes and the distribution of expenditures on pure public goods. From simulation experiments, recent reforms of the federal income tax, unemployment insurance, old age security and family allowance systems were estimated to increase the amount of redistribution from the rich to the poor.