18.4 Evaluating the Role of

Government

Earlier we stated that it is more informative to assess the progressivity of
the overall tax system than of any individual tax. It is even more
informative to assess the progressivity of the combination of taxes and
expenditures—that is, the entire tax-expenditure system. For example, a
tax-expenditure system could be highly progressive even if all taxes
proportional, as long as government expenditures and transfers
accounted for a higher portion of real incomes of the poor than of the
rich. The evidence is that the overall Canadian tax-expenditure system is
progressive and succeeds in narrowing the inequalities of income
generated by the market.

Even if there is widespread agreement that the Canadian tax-expenditure
system helps to produce a more desirable distribution of income, there is
nonetheless considerable disagreement regarding the appropriate scale of
government activity in the economy.

Public Versus Private Sector

When the government raises money by taxation and spends it on an
activity, it increases the spending of the public sector and decreases that
of the private sector. Since the public sector and the private sector spend