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ECO367H1 – Empirical exercise

2022

Part A: Top Income Data

For the first part of the analysis, we are focussing on data specifically designed to study top income shares from Statistics Canada.  First you need to import the top income data from Statistics Canada called TopIncome.csv.

1. Plot the evolution of the income share of the top l% in Canada (Definition:  Market income) between 1982 et 2017. Comment.

2. What is the threshold of the after-tax income of the top 10% in 2016?  of the top 5%? of the top 1%?

3.   (a) Plot the share of income by group (Top 0.01%, 0.1%, 1%, 5%, 10%, Bottom 50%) in 2016 for Canada (Definition: Market income with capital gains).

(b)  Compare this graph with the year 1982. What do you observe?

(c)  Compare these figures for the U.S using numbers that you can find on the World Inequality Database (here: https://wid.world/country/usa/).  What can you conclude?

4. What are the 3 provinces of Canada where the top  1% possess the highest share of income (Definition=Market income with capital gains) in 2016?

5. Bonus question: Draw a map of provinces of Canada according to the Income shares owned by the top 1%.

Part B: Individual Level Data

You will now use Individual data files of the Canadian Income Survey from 2016. Import the individual data file Individual_2016.csv.  You first need to create labels for the variables. Run the do-file Label_define_CIS.do without modifying it.

1. Inspect the after-tax income variable using the summarize command.  Do you see any issue? How would you address this problem?

2. Find the threshold of the top 10%, top 5%, top 1%.  How does it compare to the ones you found in the previous dataset? Why?

3. Provide the Gini index of the after-tax income by province. What are the 3 most unequal provinces according to this index? Hint: use the command ginidesc.

4. What is the median after-tax income of men? Women?

5. Bonus question: which regression would you run to see if there is a significant (raw) gap in after-tax income between Men and Women?  Hint:  "raw" gender gap means not accounting for differences in age, educational level, etc.

Part C: Tax avoidance

Read Smart (2021)’s piece on Finances of the Nation.

1. What trend is being observed among high income professionals and the rate of incorpo- ration?

2. How does the tax system encourage this trend?

3. Explain one strategy used by professionals to reduce their taxable *personal* income reported.

4. Is the same phenomenon occurring in the United States? Why or why not?

5. What does this mean for the evolution of the top 1% share of income you calculated in Part A., Question 1? Are we potentially over or under-estimating income inequality in Canada using tax data?