Canadian Income Research Articles

Measuring the Strength of Cointegration and Granger-Causality

This study uses Poskitt and Tremayne's (1987) posterior odds ratio test and the associated model portfolio approach to measure the strength of the evidence from cointegration and Granger-causality tests. As an illustration of the methodology, the bivariate relationship between money and income in Canada is re-examined using historical data.

Measuring the strength of cointegration and Granger-causality

This study uses Poskitt and Tremayne's (1987) posterior odds ratio test and the associated model portfolio approach to measure the strength of the evidence from cointegration and Granger-causality tests. As an illustration of the methodology, the bivariate relationship between money and income in Canada is re-examined using historical data.

Le recouvrement de l'impôt et les droits de la personne

Those who like to pay tax are few. Accordingly, income tax is often described as a shame. Of course, the right to enjoyment of property is at stake in the matters of taxation. And the collection of taxation involves also other aspects of the right to substantive and procedural due process of law : right to privacy, to be heard, to unbiassed decision, to professional secrecy... This article contrasts these rights, as they are expressed in sections 5 to 9 and 23 of the Charte des droits et libertés de la personne of Québec and section 8 of the Canadian Charter of Rights and Freedom, with sections 13 to 16 and 38 and following of the Loi sur le ministère du revenu of Québec and sections 159, 231 and 232 of the Canadian Income Tax Act. It finds that it is the application of the income tax law, more than the law itself, that threatens human rights. It concludes that the main benefit of both Charters of rights is to provide a shelter from such unreasonnable application

Testing Non‐Correlation and Non‐Causality between Multivariate ARMA Time Series

Abstract. Haugh [Journal of the American Statistical Association (1976) Vol. 71, pp. 378–85] developed an approach to the problem of testing non‐correlation (at all leads and lags) between two univariate time series. Haugh's tests however have low power against two series which are related over a long distributed lag when individual lag coefficients are relatively small. As a remedy, Koch and Yang [Journal of the American Statistical Association (1986) Vol. 8, pp. 533–44] proposed an alternative method that performs better than Haugh's under such dependencies. A multivariate extension of Haugh's procedure was proposed by El Himdi and Roy [The Canadian Journal of Statistics (1997) Vol. 25, pp. 233–56], but suffers the same weaknesses as the original univariate method. We develop here an asymptotic test generalizing Koch and Yang's method to the multivariate case. Our method includes El Himdi and Roy's as a special case. Based on the same idea, we also suggest a generalization of the El Himdi and Roy procedure for testing causality in the sense of Granger [Econometrica (1969) Vol. 37, pp. 424–38] between two multivariate series. A Monte Carlo study is conducted, which indicates that our approach performs better than El Himdi and Roy's for a wide range of models. Both procedures are applied to the problem of testing the absence of correlation between Canadian and US economic indicators, and to a brief study of causality between money and income in Canada.

Deterministic seasonality versus seasonal fractional integration

We propose in this article the use of a testing procedure due to Robinson (J. Amer. Statist. Assoc. 89 (1994) 1420) for testing deterministic seasonality versus seasonal fractional integration. A new statistic, based on the score principle, is developed to simultaneously test both the order of integration of the seasonal component and the need of seasonal dummies. Both tests have standard null and local limit distributions. However, finite-sample critical values of the tests are computed, and experiments based on Monte Carlo show that the sizes of the asymptotic tests are too large, these larger sizes being also associated with some superior rejection frequencies compared with the finite-sample-based tests. Using quarterly data for real consumption and income in Canada, the UK and Japan, the results show that both variables are seasonally fractionally integrated for the three countries without need of deterministic seasonal dummies. We also find evidence that the series may be seasonally fractionally cointegrated.

The retirement incentive effects of Canada's Income Security programs

Abstract Canada has a large Income Security system for retirement that provides significant and widely varying disincentives to work at older ages. We provide an empirical analysis of the retirement incentives of the Canadian Income Security system using a new administrative database. We find that the work disincentives inherent in the Canadian Income Security system have significant impacts on retirement. This suggests that program reform can play a role in responses to fiscal pressures. We also demonstrate the importance of controlling for lifetime earnings in retirement models. Specifications without these controls overestimate the effects of the Income Security system. JEL Classification: H55, J26Les effets d’incitation à la retraite des programmes de la sécurité du revenu au Canada Le Canada a un important système de sécurité du revenu après retraite qui crée des désincitations importantes et diverses au travail pour les gens d’un âge avancé. Les auteurs donnent des résultats d’une analyse empirique de ces incitations en utilisant certaines données administratives nouvelles. Il semble que ces désincitations au travailont un impact significatif sur les décisions de retraite. Voilà qui suggère qu’une réforme des programmes peut avoir un impact important sur les réactions aux pressions fiscales. On montre aussi que la prise en compte des revenus tout au long de lavie active a une grande importance dans les modèles de retraite. Il est clair que toutes les spécifications de modèles qui ne prennent pas en compte ces facteurs tendent à sur‐estimer les effets des programmes de la sécurité du revenu.

The Retirement Behavior of Married Couples: Evidence from the Spouse's Allowance

I examine the effects of the introduction of the Spouse's Allowance to the Canadian Income Security system on the retirement behavior of couples. This policy intervention provides an excellent opportunity to investigate how income security programs affect the timing of retirement. The structure of the Allowance also provides a view of how programs targeted at one spouse can affect the behavior of the other. Finally, conditional of the types of data available for this time period, the analysis considers the joint labor market decisions of couples. The results indicate that the introduction of the Allowance is associated with decreased employment rates and increased not in the labor force rates among eligible males. Eligible females did not share the rising employment rates over the 1970s experienced by their counterparts who were not eligible for the Spouse's Allowance.

Scapegoats or Responsive Entrepreneurs: Canadian Manufacturers, 1907–1990

Canadian income per capita has been, and continues to be, lower than American income per capita. The search for convergence opportunities, and scapegoats, has focused on perceived weaknesses within the Canadian manufacturing sector. In this paper quantitative evidence is presented which indicates that a sample of Canadian manufacturing firms have traditionally responded to changes in their input prices in a manner consistent with cost minimization and theories of induced innovation. These findings are inconsistent with claims of weakness and failure within the Canadian manufacturing sector. Journal of Economic Literature Classification Numbers: D21, L60, N60.

Trickling down or fizzling out? Economic performance, transfers, inequality, and low income in Canada

This paper examines the empirical relationships between economic performance, transfers, and low income among Canadian families, and explores whether these relationships have changed over time. Similar recent studies in the US find a weakening in the negative relationship between economic growth and low income over the past 25 years. Using data extracted from the Canadian Survey of Consumer Finances (SCF), we find that improving economic performance reduces the incidence of low income among families in Canada from 1973 to 1995. Government transfers are also found to lift families above the low-income threshold. These results are robust across different family types and for three different measures of low income.

The Impact of the Canada‐United States Free Trade Agreement on U.S. Wine Exports

AbstractOn 1 January 1989 the Canada‐United States Free Trade Agreement went into effect. The agreement reduced the restrictions on the importation and marketing of wine produced in the United States. This article analyzes the impact of this lessening on United States wine exports to Canada. A demand relation for United States exports to Canada is estimated and then used to decompose the effects into their proximate causes. These causes are (a) own‐price and exchange rate effects, (b) substitute price and exchange rate effects, (c) changes in real income in Canada, (d) tariff removal effects, and (e) removal of nontariff trade barriers by Canada.

Concept of Income Under the Indian and Canadian Income Tax Acts

Concept of Income Under the Indian and Canadian Income Tax Acts

Economic Growth and Regional Income Disparities in Canada and the Northern United States

This paper compares the evolution of regional disparaties in per capita incomes in Canada and the 12 American states along Canada's southern border. The phenomenon of capital accumulation as described by the neoclassical growth model can explain much of the observed decline in regional dispersion in Canada relative to the northern states. However, it appears that Canadians are more likely than residents of the northern states to remain in regions where they do not have jobs, a factor which contributes to the persistently higher level of regional dispersion of output per capita in Canada.

The Retirement Behavior of Married Couples: Evidence From the Spouse's Allowance

I examine the effects of the introduction of the Spouse's Allowance to the Canadian Income Security (IS) system on the retirement behavior of couples. This program was effectively targeted at females in couples attempting to live on a single pension. It allowed qualifying spouses to receive the age related benefits of the IS system at age 60, up to five years earlier than other members of the population. This policy intervention provides an excellent opportunity to investigate how income security programs affect the timing of retirement, and how programs targeted at one spouse can affect the behavior of the other. The results indicate that the introduction of the Allowance is associated with a relative increase in the labor force rates of 6 to 7 percentage points among males in eligible couples. Eligible females did not share the rising employment rates over the 1970s experienced by their counterparts (of the same age) who were not eligible for the Spouse's Allowance.

Does the Vertical Mosaic Still Exist? Ethnicity and Income in Canada, 1991*

Cet article met à jour nos connaissances sur les liens entre appartenance ethnique et classe sociale au Canada en s'appuyant sur le document The Public Use Microdata File for Individuals, qui se fonde sur le recensement du Canada de 1991. L'analyse se fait en trois temps: on examine d'abord les liens entre l'appartenance ethnique et le niveau d'etudes par groupe ethnique; on considère ensuite les revenus en fonction du niveau d'études chez différents groupes ethniques; enfin, à l'aide de l'analyse de régression log‐linéaire, on étudie les liens entre appartenance ethnique, niveau d'études et revenu en neutralisant les effets de nombreuses autres variables sociales. On constate que, dans la plupart des catégories de niveau d'études, les Canadiens‐Français ont des revenus beaucoup plus élevés que les Canadiens‐Anglais, lorsqu'on neutralise les effets d'autres variables. À cette exception près, il n'y a presque aucune différence de revenus entre les différentes ethnies d'origine européenne possédant le même niveau d'études lorsqu'on neutralise les effets d'autres variables sociales. Toutefois, ceux qui appartiennent à des minorités visibles ont des revenus beaucoup plus modestes que les autres Canadiens, quel que soit leur niveau d'études. L'origine raciale est done devenue la principale cause d'inégalités de revenus au Canada.This paper updates our knowledge about the relationship between ethnicity and social class in Canada using The Public Use Microdata File for Individuals drawn from the 1991 Census of Canada. We provide three levels of analysis. First, we examine the relationship between ethnicity and education by ethnic group. Second, we examine the “return to education” in terms of income for those of various ethnic groups. Third, we use log‐linear regression to examine the relationship between ethnicity, education and income while controlling for the effects of a variety of other social variables. We find that, at most educational levels, Canadians of French ethnicity now earn significantly more than those of British ethnicity when other variables are controlled. With this exception, for those of European ethnic backgrounds there are now virtually no significant differences in income within educational levels when other social variables are controlled. However, those who belong to visible minorities have significantly lower incomes than other Canadians at all educational levels. Race is now the fundamental basis of income inequality in Canada.

A distribution-free test for deprivation dominance

The Raw1sian perspective on social policy pays particular attentionto the least advantaged members of society, but how should "the least advantaged" be identified? The concept of deprivation dominance operationalizes in part the Rawlsian evaluation of the welfare of the least advantaged members of society, but a statistical procedure for testing deprivation dominance is needed. In this paper, we construct a new distribution-free test for deprivation dominance and apply i t to Canadian income survey data

An analysis of the dynamic behaviour of earnings distributions

An analysis of the dynamic behaviour of earnings distributions is conducted here in three ways. First, the method of dimensional analysis, in the context of Buckingham's Pi theorem, is employed to demonstrate that earnings distributions, which are almost always dynamic in character, should, under certain conditions and a special coordinate transformation, be self-similar and time-invariant. Application of the theorem to some empirical data, pertaining to Canadian income, fully confirms this finding. Second, an economics-based model, incorporating the concept of a shock-free economy in competitive equilibrium, is developed to provide an intuitive account of the conclusions reached above. Testing the model's predictions against data once again yields satisfactory agreement between the two. The model is finally extended to account for labour-force mobility across income brackets. The outcome of this, when compared with empirical data, could reflect the degree of homogeneity, and even discrimination, in a labour force.

Tax Effects in Canadian Equity Option Markets

The Canadian Income Tax Act induces individual investors to close their short equity option positions at the end of the year and, if necessary, reopen them at the beginning of next year. This article analyzes the conditions under which it is optimal to close or leave open a short option position over the tax year boundary. The analysis shows that the latter decision depends on transaction costs, the investor’s marginal tax rate, the interest rates, the initial and end-of-the-year option prices, as well as whether the option position is naked or covered. The article also examines the impact of tax regulations in Canada on the pricing of naked vs. covered call options and American vs. European options.

Who Paid the Taxes in Canada, 1951-1988?

This paper measures the changes in total tax incidence in Canada for selected years from 1951 to 1988. It presents the first set of time-consistent estimates of the effect of all Canadian taxes on the distribution of income in Canada. The methodology builds up a comprehensive measure of broad income, which includes the first inflation-adjusted measure of capital income in a tax incidence study. The key findings are that over 1951-88: (1) average tax rates for the poorest 10 percent and the richest 2 percent of Canadian families fell, whereas tax rates for most other families in the middle rose; (2) while in 1951 the tax incidence pattern was regressive over the low income range and highly progressive over the upper income range, it has evolved into one that resembles a flat rate tax system, with some progressivity over the lower income range and for the richest 2 percent of Canadian families.

Demographic Change and the Cost of Publicly Funded Health Care

ABSTRACTThis paper is concerned with questions relating to demographic change (population growth and aging) and its implications for operating a publicly funded health care system in a Canadian setting. It provides an assessment of how prospective population changes alone would affect the share of health care costs in total national income in Canada over the next several decades; it provides also an analysis of how actual patterns of hospital service provision changed in Ontario over the last decade in response to budgetary restrictions in a period of rising demand for services. Finally, a case is made for viewing health care as an integrated system; a description is provided of a set of computer-based models that have been developed to facilitate analysis of the health care system, and illustrative projections are discussed.

The Effects of Higher Unemployment on the Distribution of Income in Canada: 1981-1987

Ce texte presente les r6sultats d'un modale de simulation microeconomique qui analyse les effets distributifs des taux de chbmage changeants durant la periode 1981-1987. Le modele de simulation est un modale de comportement implant6 dans un modale macroeconomique dynamique. Afin d'analyser les effets distributifs de la hausse du taux de chbmage, le texte confronte l''volution historique du taux de chbmage au Canada pendant la periode 1981-1987 ' un scenario d'tquilibre stationnaire, et compare la valeur ainsi que la distribution de la valeur presente simul e des revenus d'emploi (capital humain) dans les deux scenarios. Les resultats majeurs de la simulation montrent une perte de capital humain de l'ordre de 38.7 milliards de dollars ($1981). La distribution du capital humain dans le sc6nario historique est plus inegale que dans le scenario d'6quilibre stationnaire. Il y a egalement une variation considerable dans la distribution des pertes pendant cette priode. Ceux qui resident dans les provinces Atlantiques, ceux qui sont peu 6duqus, ceux qui ont peu de revenus, ceux qui ont des emplois de col-bleu, les femmes, les gens mari6s et les jeunes semblent etre de loin les plus grands perdants.