Enhancing the Working Income Tax Benefit to Influence Income Inequality in Canada: A Comparative Program Review and Exploration of Possible Reforms

Abstract

Income inequality is an important public policy issue because of the negative effects it can have on social mobility, the economic performance of a country, and social cohesion. Inequality has increased in Canada over the last 30 years because of changes in the labour market, demographics, and redistributive policies. These trends have led to increasing incomes at the top of the distribution and stagnant or decreasing incomes in the middle and bottom of the distribution. By supplementing the wages of workers at the bottom of the distribution, the Working Income Tax Benefit can help to counteract the increasing divergence between the incomes of skilled and unskilled workers, which is an important driver of inequality. Findings of a comparison of the WITB and the Earned Income Tax Credit in the United States show how possible reforms to the program could have an equalizing effect on the bottom half of the income distribution.