Microeconomics,, 16th Canadian Edition

(rishikesh) #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


Free download pdf