An Analysis of Effective Marginal Tax Rates in Quebec

Abstract

This article draws up a portrait of effective marginal tax rates (EMTRs) on labour income in Quebec. It aims at allowing a better understanding of the impact of tax policy on the behavior of economic agents. Using an accounting microsimulation model that reproduces the system of taxes and transfers in 2002 Quebec, we measure the EMTRs that result from the interaction of the mechanisms of income taxation and redistribution. Moreover, we evaluate the distribution of EMTRs in the population. The analysis of EMTRs shows, inter alia, that family policy, whose assistance is targeted towards low-income families, generates high levels of EMTRs ascribable to the generally fast reduction of transfers as income increases. More than a quarter of heads of single-parent households face an EMTR which can reach, and even exceed, 80%. As for the two-parent families, they mostly face EMTRs of around 50%. We show the importance of accounting for EMTR heterogeneity, both with respect to types of families and levels of incomes, as well as evaluating the variability of EMTRs in the population.