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IMF Country Report No. 21/55
CANADA
SELECED ISSUES
March 2021
This Selected Issues paper on Canada was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on February 25, 2021.
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Title Page
CANADA
SELECTED ISSUES
February 25, 2021
Approved By
Western Hemisphere Department
Prepared by Troy Matheson, Dan Pan (all WHD); Marco Gross (MCM); Ian Parry, Simon Black, Danielle Minnett and Victor Mylonas (all FAD), with editorial support from Irina Sirbu.
Contents
INCOME INEQUALITY: WHERE DO WE STAND?
A. Introduction
B. A Closer Look at Inequality Across Canadian Provinces
C. Does Inequality Reduce Growth in Canada?
D. Why Has Inequality Risen Across Canada?
E. Summary and Policy Conclusions
References
FIGURES
1. Gini Coefficient
2. Inequality and Poverty Rates
3. Inequality Across the OECD and^Te^
4. Provincial Inequality
5. Lorenz Curves (Mark^om7)
6. Contributions to Market Income Gini Coefficient by Quintile
7. Redistribution’s Impact on Improvements in Gini Coefficients
8. Decompositions of Redistribution
9. Transfers: Average Rate
10. Taxes: Shares of Total Paid by Income Quintiles
TABLE
1. Estimation Results
APPENDIX
I. Background
CANADA: CORPORATE SECTOR RISK ANALYSIS, COVID-19 POLICY COUNTERFACTUALS, AND LINK TO BANK BALANCE SHEETS
A. Introduction
B. Objective, Data, and Model Framework
C. Policy Counterfactual Simulation Results
FIGURES
1. Corporate Sector Leverage and Debt Service Burden in G7 Countries
2. Firm Industry-Level Risk Metrics
3. Historical Probabilities of Default and Asset Volatility by Industry Segments
4. Impact Channels Captured by the Corporate Sector Model Framework
5. PD Bridge Equations: Long-Run Multipliers and Inclusion Probabilities
6. Asset Volatility Bridge Equations: LRMs and Inclusion Probabilities
7. Initial Impulse Response to a Corporate Default Rate Shock of +1pp
8. Policy and Market Interest Rate Dynamics Central Bank Balance Sheet
9. First and Second Round Counterfactual Simulation Results
10. Counterfactual Impact on Canadian Bank Balance Sheets
TABLES
1. Model Framework – Components
2. Bridge Equations (Semi-Elasticities) For Revenue Growth and Costs of Goods Sold Growth
3. Macroeconomic Feedback Estimates from Corporate Sector Debt Cost Counterfactual
APPENDIX
I. Micro Data Characteristics
CLIMATE MITIGATION POLICY IN CANADA: A PROTOTYPE FOR OTHER COUNTRIES
A. Introduction
B. Background on Emissions, Targets, and Policies
C. Assessing Canada’s Mitigation Strategy
D. Fiscal Policy Options for Enhancing the Effectiveness and Acceptability of Canada’s Mitigation Strategy Without a Revenue Loss
E. Addressing the Burden of Carbon Pricing on Households and Firms
F. Global Mitigation: Canada’s Price Floor as a Prototype for an ICPF
G. Summary of Policy Recommendations
References
FIGURES
1. Global Fossil Fuel CO2 Emissions Trends
2. Breakdown of GHG Emissions, 2018
3. Fossil Fuel CO2 Emissions Trends
4. Selected Carbon Pricing Schemes, 2020
5. Comparison of Efficient and Actual Fuel Prices, G20 Countries, 2015
6. 2030 CO2 Projections
7. CO2 Reductions for Pledges/from Pricing
8. CO2-Based Components of Vehicle Tax
9. Illustrative Feebate for Power Sector
10. Burden from Increasing the CO2 Price to $170 per ton by Household Income Decile and Region Prior to Revenue Recycling, 2030
11. Cost Increase from $50 Carbon Price, 2030
12. Burden of a US$50/Ton Carbon Price on Industries in 2030 Before Pass Through, Selected Countries
13. Revenue from $170 BCA, 2015
TABLES
1. Summary of Recommended Federal Policy Actions
2. Energy Price Impacts of US$75/ton CO2 Price, Selected Countries 2030
3. BCAs Versus Other Instruments
4. G20 CO2 Outcomes Under Alternative ICPF Scenarios
APPENDICES
I. Further Details on the OBPS and Provincial/Territorial Carbon Pricing Schemes
II. The Economic Importance of Using Carbon Pricing Revenues Productively
III. Burden of Carbon Pricing on Industries
IV. Design Issues for BCAs