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Social benefits and transfers to lower-income individuals can reduce inequalities as well.
Relative equality or inequality in a country is usually measured by the Gini coefficient,
a calculation based on individual incomes. A Gini coefficient of 0 means that income
distribution is perfectly equal, while a coefficient of 1 means that it is absolutely unequal,
with the richest individual having all the income and everyone else having no income.
Figure 1.1 shows the Gini coefficients for Canada over time, both before and after taxes
and transfers. The figure clearly illustrates how taxes and transfers make the distribution
of net income more equal. The Gini coefficient for pre-tax income (a measure of income
inequality) has gone up measurably from 0.45 to 0.51 between 1976 and 2006, implying
that income distribution is less equal. However, on an after-tax basis, taking both taxes
and transfers into account, the Gini coefficients are much lower in value (implying more
equality) and rose less, from approximately 0.31 to 0.33 between 1976 and 2008. Further,
the Gini measures in figure 1.1 would be even lower if the value of public services for
health, education, and other major public services were included as part of personal
income.
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