Microeconomics,, 16th Canadian Edition

(Sean Pound) #1

distribution of after-tax income—income after taxes have been paid and
transfers have been received. Since the after-tax income Lorenz curve is
closer to the diagonal than the pre-tax income Lorenze curve, Canada’s
tax-and-transfer system reduces the inequality of income.


(on an “as is” basis with the permission of Statistics Canada.)Source: Adapted from Statistics Canada, CANSIM Table 206-0031. Reproduced and distributed


The data in the table in Figure 14-10 show that in 2016, the bottom 20
percent of all Canadian families received 2.8 percent of all pre-tax
income, whereas the top 20 percent of families received 46.3 percent of all
pre-tax income. These pre-tax data are shown by the lower Lorenz curve
in the figure. Canada’s tax-and-transfer system, however, had a marked
effect on the income distribution. The upper Lorenz curve shows the
distribution of after-tax family income—that is, income after all taxes have
been paid and transfers have been received. The bottom 20 percent of
families receive 7.3 percent of after-tax income while the top 20 percent
of families receive 38.9 percent. The difference between the two Lorenz
curves shows the extent to which Canada’s tax-and-transfer system
reduces income inequality.


International Data


Income inequality exists in all countries, but there are important
differences across countries in the degree of inequality. As a general rule,
developed economies tend to have less income inequality than do
developing countries, partly because the developed countries have better
functioning political and economic institutions that result in greater


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