Income Inequality in Quebec: Do We Have the Full Picture?

Lately, the public discourse has been increasingly focused on the idea of a “K‑shaped economy”—a situation where the well‑off keep pulling ahead and those who are already struggling fall further behind. There’s a fair chance we’ll hear more of the same if debates over inequality in Quebec intensify in the years ahead. Given the fact that many of today’s inflationary shocks, especially in gas, food and housing (graph 1), will likely place a greater financial strain on the province’s less well‑off households, it seems wise to take stock of the situation in Quebec. Without a clear view of the facts, we can’t have a truly informed debate. And while the matter has been studied for quite some time, the information we do have is inherently biased and incomplete. 

The Gini Coefficient: Before and After Taxes and Transfers

The most commonly used indicator to track income inequality is the Gini coefficient. It’s an index that ranges from 0 to 1 and is used to describe income concentration in a society. When it’s closer to 0, income is more equally distributed across the population, and when it’s closer to 1, that means that income is concentrated among a smaller number of individuals. While it’s widely accepted that inequality is on the rise, this indicator actually presents a more nuanced picture. If we look at the pre‑tax Gini, we can see that market income inequality has been slowly falling since the mid‑1990s, and that Quebec’s ratio today is in line with the national average. Among the more populated provinces, Ontario’s index is slightly higher than the others, whereas Alberta’s is the lowest (graph 2, left).

But governments redistribute income via taxes and transfers. Once we take the “redistribution effect” into account—the difference between the pre‑tax and post‑tax Gini coefficients—the income gap in Quebec after redistribution is smaller than it is in other major provinces, and is in fact nearing the lows recorded in the mid‑1980s. Redistribution efforts have increased since the pandemic and are well above the levels witnessed in the 1970s and early 1980s (graph 2 on page 1, right). Historically, these efforts have been greater in Quebec than in the rest of Canada.

However, this ability to reduce inequality depends on limited public resources. Every dollar used for redistribution comes at a real economic cost, since it must first be raised through taxes or borrowed. And in addition to the amount paid or spent, it’s important to consider the indirect effects of collecting these revenues, whether on household behaviour, investment decisions or economic activity in general. This is referred to as the “marginal cost of public funds.” In other words, there’s always a trade‑off somewhere. While redistribution is still a practical tool for addressing inequality, the effectiveness and scope of each measure must be thoroughly assessed. Empirical research typically estimates this cost to be between 1.2 and 1.5, which means that every additional dollar of public revenue raised can lead to a total economic cost of between $1.20 and $1.50.

This Picture Is Missing Asset Income

If we analyze economic inequality by focusing solely on income, we may be missing a critical angle. Wealth held as financial assets, real estate and business capital is often a more pronounced vector of inequality than current income. Some work suggests that measures of Quebec’s inequality could change dramatically if this were taken into account. The 2023 personal income tax statistics published by the Ministère des Finances du Québec give us a clearer idea of how income is distributed within the population (graph 3).

Analysis becomes more complex once capital income is included. Individual decisions on when to realize or declare this type of income can further skew the data. All of this makes it more challenging to estimate inequality, but if this angle isn’t taken into consideration, it will be impossible to get an accurate picture of how wealth and income are distributed in Quebec.

Conclusion

Quebec stands out from the other provinces in terms of its sustained redistribution efforts, which have kept inequality in a reasonable range by Canadian standards. However, the picture may begin to shift once we start looking at assets, how much income they generate for top earners, and how assets are concentrated differently from one province to the next. Future work will first assess the state of empirical research, then examine the different issues at play before attempting to measure inequality in Quebec, once the role of wealth is taken into consideration. A better understanding of these dynamics is vital if we wish to more accurately track inequality in the years ahead.