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Tax Incidence, Progressivity, and Inequality in Canada

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Tax Incidence, Progressivity, and Inequality in Canada Jonathan R. Kesselman and Ron Cheung* PRÉCIS La connaissance de la répartition du fardeau fiscal — tel qu’elle est mesurée par la progressivité et l’inégalité de l’incidence des impôts et taxes — est fondamentale pour les choix en matière de politique fiscale. Pourtant, la pratique actuelle tant pour ce qui est de la formulation que de l’évaluation des politiques fiscales ne s’inspire guère des meilleures recherches. Cette étude offre la première enquête critique exhaustive sur le sujet pour le Canada en près de 20 ans, une période marquée par l’amélioration générale et l’élargissement de la portée des méthodes de recherche. Nous avons regroupé le champ actuel de la recherche en trois grandes catégories. Les études sur l’inégalité (INEQ) mesurent la réduction inéquitable des taxes et impôts directement payés par les particuliers, principalement l’impôt sur le revenu des particuliers. Les études sur l’équilibre général calculable (CGE) portent sur la répartition à vie du fardeau d’impôts et de taxes stylisés au moyen de modèles économiques et mathématiques complexes. Les études sur l’incidence fiscale (FINC) calculent le modèle de progressivité ou de régressivité pour chaque impôt et taxe et pour le régime fiscal dans son ensemble au moyen de méthodes de microsimulation. Les auteurs évaluent les forces et faiblesses relatives de chaque type d’étude et donnent un aperçu des mesures d’inégalité et de progressivité de l’impôt utilisées dans les ouvrages théoriques, puis ils examinent les problèmes de méthodologie que pose la mesure du bien-être économique aux fins de l’analyse de la répartition des impôts et taxes. Ils fournissent des preuves des effets relatifs de la péréquation des transferts et de l’impôt des particuliers au Canada et examinent ensuite les conclusions et méthodes comparatives d’études représentatives de chaque catégorie en mettant l’accent sur les études qui portent sur les impôts et taxes canadiens et les hypothèses sous-jacentes au sujet de leur incidence. *Jonathan R. Kesselman is of the Public Policy Program, Simon Fraser University, and holds the Canada Research Chair in Public Finance. Ron Cheung is of the Department of Economics, University of British Columbia. This study was prepared as part of the Social Sciences and Humanities Research Council MCRI project “Equality, Security, and Community: Explaining and Improving the Distribution of Well-Being in Canada.” The authors thank the following for useful comments: Charles Beach, David Bradford, Don Fullerton, Peter Lambert, Alan Macnaughton, Kevin Milligan, Finn Poschmann, Jim Poterba, Joe Ruggeri, Andrew Sharpe, Mike Veall, and particularly the reviewers, Jim Davies and Bev Dahlby. Responsibility for the views and any errors in this study lies fully with the authors. (2004) vol. 52, no 3 ■ 709 710 ■ canadian tax journal / revue fiscale canadienne (2004) vol. 52, no 3 On estime que les transferts sont plus importants que l’impôt sur le revenu pour réduire l’inégalité des revenus des Canadiens pour toutes les périodes depuis 1971 et pour la plupart des types de ménages (à l’exception de ceux dont le revenu par habitant est élevé). D’après les études sur l’inégalité (INEQ), pour ce qui est de la réduction de l’inégalité de l’impôt sur le revenu et compte tenu des mesures utilisées, le Canada occupe un rang intermédiaire parmi les autres pays; certaines études concluent que l’impôt sur le revenu des particuliers au Canada est moins égalisateur que l’impôt américain. Les études sur l’équilibre général (CGE) ont été préparées en majeure partie aux fins de l’analyse du régime fiscal américain et comportent peu d’éléments de comparaison avec le régime fiscal canadien, même si les résultats sont révélateurs de la situation canadienne. Sur la base des fourchettes de revenu à vie dans l’équilibre à long terme, seul l’impôt sur le revenu des particuliers est fortement progressif. Les taxes sur la masse salariale sont fortement régressives : la taxe de vente, la taxe d’accise et l’impôt foncier sont nettement régressifs sauf pour les deux déciles supérieurs des fourchettes de revenu à vie. Même l’impôt sur le revenu des sociétés est quelque peu régressif pour les fourchettes de revenu à vie, à l’exception des deux déciles supérieurs. Tous les impôts et taxes combinés sont généralement proportionnels pour les neuf déciles inférieurs et fortement progressifs pour le décile supérieur. Les études sur l’incidence fiscale (FINC) qui reposent sur des données annuelles, le plus fréquemment utilisées pour les impôts et taxes canadiens, concluent à une progressivité légère ou substantielle pour le régime fiscal dans son ensemble. Une étude sur les impôts à vie conclut à une progressivité quelque peu inférieure à celle de résultats comparables fondés sur les données annuelles. Comme pour les études sur l’équilibre général, les études sur l’incidence fiscale attribuent un rôle clé à l’impôt sur le revenu des particuliers dans toute progressivité nette de l’ensemble du régime fiscal total, compte tenu de la régressivité de nombreux autres types d’impôt et de taxe. L’analyse s’intéresse particulièrement au fondement économique des hypothèses au sujet de l’incidence de principaux impôts et taxes utilisées dans les trois catégories d’études. L’incidence fiscale et le déplacement possible du fardeau fiscal des contribuables vers d’autres parties joue un rôle fondamental dans l’analyse de la répartition du fardeau fiscal. La recherche théorique et empirique à multiples facettes jette le doute sur l’hypothèse de base selon laquelle l’impôt sur le revenu des particuliers est entièrement assumé par ceux-ci. La recherche montre que le fardeau de l’impôt sur le revenu des particuliers à revenu élevé est au moins déplacé en partie vers d’autres personnes, ce qui en réduit la progressivité réelle. Compte tenu du rôle clé de la progressivité de l’impôt sur le revenu des particuliers dans les conclusions de nombreuses études sur la progressivité générale de l’impôt, la question mérite d’être poussée plus loin. Si l’on devait utiliser des hypothèses sur l’incidence plus compatibles avec la recherche citée pour l’impôt sur le revenu, même ces conclusions modérées sur la progressivité pourraient être réfutées. La plupart des études canadiennes dont il est question dans l’article sont déjà dépassées et mériteraient d’être mises à jour pour tenir compte des importants changements de politique fiscale apportés depuis 1988. De plus, l’utilisation de données permettant les inférences au sujet des effets permanents permettrait de meilleures évaluations des impôts et taxes calculés sur le revenu par rapport aux impôts et taxes indirects. La recherche à venir devrait quand même insister sur une meilleure compréhension de l’incidence des impôts et taxes personnels. tax incidence, progressivity, and inequality in canada ■ 711 ABSTRACT Knowledge about the distribution of the burden of taxes—as measured by their progressivity and their inequality impacts—is crucial for tax policy choices. Yet actual practice for both the formulation and assessment of tax policy does not draw on much of the best research knowledge. This study offers the first comprehensive critical survey of the field for Canada in nearly 20 years, a period of wide-ranging refinement and extension of research methods. We group the existing field of research into three principal genres. Inequality (INEQ) studies measure the inequality reduction from taxes borne directly by individuals, principally the personal income tax. Computable general equilibrium (CGE) studies examine the distribution of lifetime utility burdens of stylized taxes using complex mathematical economic models. Fiscal incidence (FINC) studies compute the pattern of progressivity or regressivity for each tax and the entire tax system using microsimulation methods. We assess the relative strengths and weaknesses of each type of study. We offer a compact overview of the measures of inequality and tax progressivity used in the empirical literature, followed by a review of the methodological issues that arise in measuring economic well-being for tax distributional analysis. We provide some evidence on the relative equalizing effects of transfers and personal taxes in Canada. Then we examine the comparative findings and methods of representative studies of each type, with emphasis on studies that include Canadian taxes and with a focus on the underlying assumptions about tax incidence. Transfers are found to be more important than income taxes in reducing inequality of Canadian incomes for all periods since 1971 and for most types of households (except those with high per capita incomes). INEQ studies find that Canada’s ranking in inequality reduction from personal income taxes is intermediate among countries and dependent upon the measure of inequality; some studies find Canadian personal taxes to be less equalizing than the US counterparts. CGE studies have been developed most for analysis of the US tax system, with little comparable available for the Canadian tax system though the US results are suggestive of the Canadian situation. Based on lifetime income groups in the long-run equilibrium, only the personal income tax is found to be strongly progressive. Payroll taxes are strongly regressive; sales, excise, and property taxes are significantly regressive except for the top two deciles of lifetime incomes; and even the corporate income tax is somewhat regressive over lifetime income groups except for the top decile. All taxes taken together are found to be roughly proportional for the bottom nine deciles and highly progressive for the top decile. FINC studies using annual data, which have been most frequently applied for Canadian taxes, find either slight or substantial progressivity for the tax system overall; a lifetime study finds somewhat less progressivity than comparable results based on annual data. As with CGE findings, the FINC studies assign a key role to personal income taxes in any net progressivity of the total tax system, given the regressivity of many other tax types.
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