Comparing Low Income of Canada's Regions: A Stochastic Dominance Approach

Income Research Paper Series, Statistics Canada, Catalogue no. 75F0002M — No. 006

44 Pages Posted: 27 May 2010

Date Written: October 10, 2008

Abstract

Comparisons of low income between regions may have impacts on policy choices. However, it is often argued that rankings of distributions are not robust and that they are also quite sensitive to methods of defining low income. This paper avoids these problems by using a stochastic dominance approach to compare regional low income profiles in Canada without arbitrarily specifying a low-income line. This analysis is carried out for the 10 provinces using the Survey of Labour and Income Dynamics for 2000. Robustness of the results is also verified with respect to different choices of spatial price deflators and equivalence scales. The extent to which the findings are sensitive to the choice of an absolute or a relative concept of low income is also examined. We show that, in most cases, dominance relations can be determined and regional low income can be ordered for a wide range of low-income lines. We also show that dominance results are robust to the choice of equivalence scales, while rank reversal occurs when alternative cost-of-living deflators are used. Switching from an absolute to a relative low-income concept only affects low-income rankings for Ontario, Quebec and the Prairie provinces, but not in the case of other provinces. Nevertheless, for all scales, we find that low income is greatest in British Columbia.

Keywords: low-income ordering, low-income measures, stochastic dominance, costs-of-living

JEL Classification: I32

Suggested Citation

Chen, Wen-Hao, Comparing Low Income of Canada's Regions: A Stochastic Dominance Approach (October 10, 2008). Income Research Paper Series, Statistics Canada, Catalogue no. 75F0002M — No. 006, Available at SSRN: https://ssrn.com/abstract=1616323 or http://dx.doi.org/10.2139/ssrn.1616323

Wen-Hao Chen (Contact Author)

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