Sunday, August 9, 2015

Taxation and Redistribution across Canada

In Canada, federal and provincial governments raise taxes on households’ incomes to finance their spending. These taxes are their main sources of revenue. While the federal income tax rates are the same across the country, provincial tax rates are different from coast to coast. As a result the tax burden on Canadians varies depending on where they live. So do the transfers they receive.

Implicit Tax and Government Transfer Rates across Canada, Average, 1976-2011, Atlantic (N L: Newfoundland & Labrador, PE: Prince Edward Island, NS: Nova Scotia, NB: New Brunswick), Central (QC: Quebec, ON: Ontario), Western (MB: Manitoba, SK: Saskatchewan, AB: Alberta, BC: British Columbia)
Implicit Tax and Government Transfer Rates across Canada, Averages, 1976-2011, Atlantic (N L: Newfoundland & Labrador, PE: Prince Edward Island, NS: Nova Scotia, NB: New Brunswick), Central (QC: Quebec, ON: Ontario), Western (MB: Manitoba, SK: Saskatchewan, AB: Alberta, BC: British Columbia)

  • Tax rates in Quebec and Ontario are higher than the national average.
  • Tax rates in Prince Edward Island are the lowest.
  • Government transfer rates are higher in the Atlantic Provinces than in the rest of Canada.
  • Income redistribution is less important in Ontario, Alberta, and British Columbia. 


The high rate of unemployment in the Atlantic Provinces [here] and the low living standard [here] explain why their tax rates are the lowest and their government transfer rates the highest.

Focusing on Quebec and Ontario reveals some differences between the two provinces.

Implicit Tax and Government Transfer Rates by Income Quintiles, Quebec and Ontario, Averages, 1976-2011
Implicit Tax and Government Transfer Rates by Income Quintiles, Quebec and Ontario, Averages, 1976-2011

  • Quebec  taxes high incomes higher than Ontario.
  • The transfer rates to low and middle income households are, at the same time, higher in Quebec than in Ontario.



The data and R codes used are available here