The Canadian income taxation: Statistical analysis and parametric estimates

Abstract

Using the administrative tax return database, we document the Canadian income and tax statistics in 2000 and in 2016 and compare them with those of the US. Also, we estimate parametric tax specifications used in applied macroeconomic and public finance studies. Although these specifications are, in general, good fits for average tax rates, their estimates yield large residuals for high-income earners. We introduce a new parametric tax specification, which fits the data well and captures the rates of high-income earners better than existing tax functions. The new specification can provide better quantitative analysis because most of the tax budget is financed by high-income earners.