Taxing the highest-income earners in Canada has become vogue, on the grounds they have more resources to handle the burden of raising much needed revenue.
Seven of the nation's 10 provinces have adopted higher taxes on the so-called rich since 2010. Canadian Prime Minister Justin Trudeau's Liberal Party won elections in October partly on a plan to do the same on a federal level.
Trudeau will probably be more successful with the policy than his provincial counterparts, according to a study published Wednesday.
Kevin Milligan, a University of British Columbia professor who advised Trudeau on economic matters before the election, and the University of Toronto's Michael Smart, ran simulations that showed wealthier families facing an increase would probably respond by using tax shelters or moving their incomes to another province.
Extra revenue from further provincial increases may be "modest" and address only a small fraction of the decades-long rise in income inequality, the authors wrote. The study simulated the effects of raising the tax rate on the top 1 percent of earners by 5 percentage points.
"While taxing top earners may seem like an easy way to bring in more revenue, provinces will receive much less than expected if they fail to recognize how tax hikes alter behavior," they wrote in a statement outlining the paper they wrote for the Institute for Research on Public Policy.
It's a conclusion that should come as some relief to the Prime Minister's Office.
Trudeau campaigned on reducing inequality and aiding the prospects of the middle class. Part of that program is creating a new tax rate of 33 percent for people earning more than C$200,000 ($150,000) a year, to cut taxes for lower earners. The highest tax rate had previously been 29 percent.
With the provincial experience mixed, there have been concerns the cost of raising taxes will outweigh the benefits at the federal level too.
"If the federal government were to increase its tax rates on high incomes – or if the provinces coordinated their own actions – there might be less scope for this behavioral response," Milligan and Smart wrote.