Canadian inequality squashed

In Canada, like in the U.S., there has been an increase in inequality over the last few decades, as those with better jobs have pulled ahead of those with worse jobs — partly because the value of education has increased, increasingly separating those with more from those with less. This all according to a recent article in the Review of Economic Dynamics by Brzozowski and colleagues.
As a result, the Gini index for family earnings, which measures inequality on a scale of 0 to 1, increased from about .31 to about .38 over the last 30 years.

Some of the trend in Canada, like in the U.S., is from higher-earning people increasingly marrying each other, too. However, more than in the U.S., the tax and transfer policies of the Canadian government have squashed that run-up in inequality. In this figure, the top line is the amount of family inequality in pre-government income, and the bottom line shows the inequality in disposable income.

The authors describe it like this:

Not only does disposable income exhibit much less inequality than pre-government income, but the degree of inequality is also much less variable than that of pre-government income. This suggests both that Canadian policy has been and remains redistributive, and that it smooths cyclical shocks to pre-tax income inequality.

Gini estimates differ. The CIA World Factbook has a list for all countries that puts Canada at .32, with the U.S. at .45. I don’t have a directly comparable estimate of what policy does to inequality in the U.S., but the Census Bureau came close with a report on 2005 inequality, which found that government transfers and taxes reduced the household Gini from .450 to .418. So that’s something of a comparison.

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