1) Background: In this section, draw on Statistics Canada’s public tables to cover the following: Who are the top 1%? · Top income cut-off, average income, share of income from labour & how much tax they pay · Sex and age · Provin...
1) Background:
In this section, draw on Statistics Canada’s public tables to cover the following:
Who are the top 1%?
· Top income cut-off, average income, share of income from labour & how much tax they pay
· Sex and age
· Province/Location
Compared to the bottom 50th percentile of tax filers, how has the income share and effective tax rate of the top 1% evolved over the data period?
By province, how has the income share and effective tax rate of the province-specific top 1% evolved over time?
2) Policy evaluation.
Consider the following proposal to increase the top marginal tax rate on the top (province-specific) 1%:
Base Tax System, 2020
Fictitious System, +5
Top MTR threshold ($)
MTR (%)
Top 1% MTR threshold ($)
MTR (%)
NFLD
189,604
18.3
210,200
23.3
PEI
63,969
16.7
172,400
21.7
NS
150,000
21
191,900
26
NB
160,776
20.3
175,000
25.3
ON
220,000
13.16
260,600
18.16
MB
72,164
17.4
202,600
22.4
SK
129,214
14.5
209,800
19.5
AB
314,928
15
297,900
20
BC
157,747
16.8
244,800
21.8
Federal
214,368
33
244,800
33
Cover the following issues (by province) with this proposal (Assume a constant ETI of 0.664):
· What is the net revenue effect (by province) of this proposal? Comment on any noticeable provincial differences.
o How much of the mechanical revenue gain disappears because of a behavioural effect?
o What are the revenue and mechanical effects per tax filer?
o Why is the elasticity of taxable income important?
· What might explain these differences
o Think about skewness & revenue gain share of the mechanical effect
· What is the marginal cost of public funds?
· Explain and calculate the optimal province-specific top 1% marginal tax rate. How far off is it from the fictitious +5 marginal tax rate?
· Assuming no income shifting, what is the size of the vertical fiscal externality?
· What are the progressivity implications of this proposal?
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