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Taxation and top incomes in Canada

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  • Milligan, Kevin
  • Smart, Michael

Abstract

We estimate the elasticity of reported income with respect to tax rates for high earners using sub-national variation across Canadian provinces. We argue this allows for better identification of tax elasticities than the existing literature. We find that elasticities of reported income at the provincial level are large for incomes in the top one percent, but small for lower earners. There are strong indications that the response happens both through earned and capital income. While our estimated elasticities are large, changes in tax rates cannot explain much of the overall long-run trend of higher income concentration in Canada.

Suggested Citation

  • Milligan, Kevin & Smart, Michael, 2014. "Taxation and top incomes in Canada," CLSSRN working papers clsrn_admin-2014-52, Vancouver School of Economics, revised 25 Nov 2014.
    • Handle: RePEc:ubc:clssrn:clsrn_admin-2014-52
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    References listed on IDEAS

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    Cited by:

    1. Stephen Gordon, 2020. "The incidence of income taxes on high earners in Canada," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(2), pages 437-459, May.
    2. Liam C. Malloy, 2016. "Do Lower Top Marginal Tax Rates Slow the Income Growth of Workers?," LABOUR, CEIS, vol. 30(1), pages 61-87, March.
    3. Kenneth McKenzie, 2019. "Altering the Tax Mix in Alberta," SPP Research Papers, The School of Public Policy, University of Calgary, vol. 12(25), September.
    4. Audra Bowlus & Émilien Gouin‐Bonenfant & Huju Liu & Lance Lochner & Youngmin Park, 2022. "Four decades of Canadian earnings inequality and dynamics across workers and firms," Quantitative Economics, Econometric Society, vol. 13(4), pages 1447-1491, November.
    5. Bev Dahlby & Kevin Milligan, 2017. "From theory to practice: Canadian economists contributions to public finance," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1324-1347, December.
    6. Garon, Jean-Denis & Paquet, Alain, 2017. "Les enjeux d'efficience et la fiscalité," L'Actualité Economique, Société Canadienne de Science Economique, vol. 93(3), pages 297-337, Septembre.
    7. Alexandre Laurin, 2018. "Unhappy Returns: A Preliminary Estimate of Taxpayers Responsiveness to the 2016 Top Tax Rate Hike," e-briefs 283, C.D. Howe Institute.
    8. Nicolas Zorn & Olivier Jacques, 2017. "Under the Rising Wave. How Disaggregated Revenue Sources Can Tell Another Story for Québec’s Top Income Share," Journal of Income Distribution, Ad libros publications inc., vol. 25(1), pages 1-25, March.

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    More about this item

    Keywords

    income concentration; income taxation; taxable income elasticity;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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