Does Canada Have an Income- Inequality Problem?
CHANGES IN WEALTH and income inequality around the world are largely the result of two structural changes in society: The role of government and the dynamics of economic change. Neither have been particularly controversial until the publication of Thomas Picketty’s Capital in the Twenty First Century (2014).
Picketty’s book is an exhaustive analysis of changes in wealth and economic growth over time. Unto itself, the analysis is not that controversial, but his conclusion is: When the return on capital exceeds the rate of economic growth, the ratio of wealth-to-GDP inexorably increases over time. In a free market economy, what inevitably follows is that ‘inequality’ naturally increases as the wealthiest sit back, clip their coupons and live off of their growing wealth.
Picketty’s analysis touched a chord in many countries, particularly in the UK and the U.S. — both of which were still recovering from the worst financial and economic crisis since 1937 as well as the political disturbances of the ‘occupy movement’ and railings against the ‘1%’. Just as JohnMaynard Keynes became the voice of liberal interventionist economic policy in the 1930’s, Picketty has become the voice of left leaning policymakers and journalists after the financial crisis.
This has been particularly true in Canada, where recent Liberal governments in Ottawa and Queen’s Park have owed much of their success to ‘strengthening’ the middle class by increasing taxes on the 1%. As always, much of the analysis flowing into Canada comes from rhetoric from the U.S. and UK. But how true is it of Canada, and how concerned should Canadians really be about inequality?
Although wealth and income inequality are different, I will focus on income inequality. What matters here is where you start, what you count, and how you factor in taxes and government transfers. This is because inequality, pointed out that the U.S. experience up to the early 1990s disproved the notion that taxes can permanently affect the distribution of after-tax income.
