The concern over income inequality in Canada is overstated, and doesn't take into account taxation and redistribution, according to a new study released Thursday by the University of Calgary's School of Public Policy.

Authored by Stephen Richardson, a former associate deputy minister at the department of finance, the study says that although income inequality has increased over the long-term in Canada, it has been substantially offset by the scale of income redistribution and growth in incomes overall.

The study looked at income inequality statistics from 1976 to 2008 and compares them to income growth over the same period. It found that while income inequality has risen to record highs in 2008, average household income also hit record levels of $63,500 in 2008.

The study also looked at the level of inequality after taxes and transfers, and found inequality was much lower due to a graduated tax system and social benefits for Canadians earning the least amount.

Richardson argues that "measuring only the amount of income inequality for a given population has limited use in public policy discussion." He also argues that the issue has been greatly politicized, and what is the "correct or appropriate level of income distribution" depends on political or ethical values.

OECD: Redistribution less efficient

However, a report by the OECD says Canada's wealth redistribution is behind the curve. Prior to the mid-1990s, 70 per cent of the rise in income inequality was offset by the tax-benefit system, but that has since fallen to 40 per cent.

According to the report, the main reason for the drop in efficiency is declining benefit rates and lower coverage for programs like Employment Insurance and Income Assistance.

In the OECD report, Canada's re-distribution system ranked 22nd out of 29 countries.