Numerous university researchers have focused for many years on the characterization of income and wealth inequalities and their evolution over several decades. We have been able to take note in recent days of the publication of the 2022 report of the World Inequality Lab1, fruit of the work of a hundred researchers around the world.
We learn, among other things, that income inequalities at the global level (share of the top 1%) have decreased for many decades (from 1910 to 1970), but have increased since 1970. As for inequalities in wealth or wealth (share of top 1%), they also fell from 1910 to 1980, then stabilized in Western Europe and rose again in the United States. There are recent signs of a possible turnaround. In Canada, income inequality (top 10% share) has followed a similar path to that in the United States, although the increase since 1980 has been less pronounced, and wealth inequality has remained relatively stable since 1995.
But the report remains silent on consumption inequalities. In a recent CIRANO notebook2, I regret the generalized emphasis placed on income and wealth inequalities compared to consumption inequalities, which are more socially relevant. Few researchers have looked at these consumption inequalities, although it is consumption, in kind and in cash, that determines the level and quality of household life.
Inequalities in consumption have recently been the subject, under the aegis of the Organization for Economic Co-operation and Development (OECD), of a less popular, but more important and admittedly more difficult research program. Statistics Canada is at the forefront of these developments and has recently published interesting, but still fragmentary, data on this subject.
An inclusive and realistic measurement of household consumption reveals important redistributive effects not only of taxation and financial transfers, but also of social transfers in kind.
In terms of taxation, there has been an increase in tax progressivity in Canada over the last two decades: the top quintile (the richest 20%) now pays around 60% of all taxes, an increase of nearly five percentage points since 1999, compared to 1.1% for the bottom quintile (the poorest 20%), a decrease of 0.3 point. Tax progressivity, measured as the ratio of the share of taxes paid by the top quintile to the share of the bottom quintile, has increased by about 30% over the past 20 years.
Social transfers in kind correspond to individual goods and services (possibly adding public goods and services) provided to households free of charge or at insignificant prices by public administrations and non-profit organizations. We think for example of health, education, security, parks, free shows, assistance of any type offered to poor households, etc. These in-kind transfers, which amount to more than 70% of the disposable income of households in the bottom quintile and about 11% of that in the top quintile, have increased by some 140% in 20 years.
The inclusive and realistic measurement of consumption shows that inequalities have decreased significantly over the past 20 years in Canada, by 16% between 1999 and 2018 and by 24% between 1999 and 2020. We are talking here about the ratio or ratio of the actual final consumption of households in the top quintile compared to households in the bottom quintile, including social transfers in kind.
Thus, for 20 years, consumption inequalities have decreased, unlike income and wealth inequalities. This is why the preponderant emphasis placed on income and wealth inequalities gives us an incomplete and even distorted picture of the reality of households, in particular of less well-off households.
This unduly maintains the perception of a large and growing social divide and unnecessarily exacerbates social conflicts. We add fuel to the fire of divisions and conflicts by pursuing studies which, despite their interest, miss the most relevant target, that of consumption inequalities.
It is time for governments to invest massively in studying the evolution of consumption inequalities, by supporting the efforts of national and international statistical organizations such as Statistics Canada and those of researchers who analyze these data.