A Canadian think tank says Alberta's years under Ralph Klein provide an object lesson on how lower taxes and less government push up private sector incomes.Reductions in government spending and regulatory burden under the Ralph Klein government in Alberta led to increased income mobility among the poorest segment of the population, according to a study released this morning by the Montreal Economic Institute (MEI). “Alberta’s reforms in the 1990s show that a low-tax, smaller government environment can be a boon to income mobility,” explains Vincent Geloso, senior economist at the MEI and co-author of the study. “By getting government out of the way, Premier Ralph Klein’s reforms made it possible for many of Alberta’s poorest to climb up the income ladder more quickly.” Adjusted for inflation, per person government spending fell by 32% in Alberta between 1992 and 1997 under Klein. The government also enacted a series of market-friendly reforms, such as reducing regulation in the energy sector, privatizing crown corporations and cutting personal and corporate tax rates. Empirical analysis shows that by 2005, the after-tax per person income of the poorest 10% of Albertans had grown 73 percentage points faster over a five-year period than it would have without the reforms. The same analysis shows that the poorest Albertans were able to climb the income ladder an extra 0.8 deciles on average over five years thanks to the reforms. The authors explain this income growth resulted from the new opportunities that were created thanks to the reforms. “By reviewing its fiscal and regulatory burden, Alberta made it easier for Albertans to start a business or find a good job as its economy grew,” explains Geloso. “What this teaches us is that governments can help the least fortunate among us to improve their own lot by taxing and spending less.”In the paper, the authors say the Klein approach should be adopted, not feared."There is a common fear that in highly unequal societies, someone born in the poorest class will remain trapped there. This has motivated numerous calls for more government intervention in the economy, notably by increasing funding to education or social policies. Until fairly recently, little consideration was given to the role of pro-market reforms in promoting income mobility. The present study highlights their importance," the authors wrote."These lessons from Alberta tell us that it is possible to promote income mobility and improve the lot of the poor without increasing taxes and spending. What matters most is removing hurdles that make it difficult for people to help themselves. Other Canadian provinces would do well by their most vulnerable residents to consider enacting similar reforms."The MEI is an independent public policy think tank with offices in Montreal and Calgary. Through its publications, media appearances and advisory services to policy-makers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.
A Canadian think tank says Alberta's years under Ralph Klein provide an object lesson on how lower taxes and less government push up private sector incomes.Reductions in government spending and regulatory burden under the Ralph Klein government in Alberta led to increased income mobility among the poorest segment of the population, according to a study released this morning by the Montreal Economic Institute (MEI). “Alberta’s reforms in the 1990s show that a low-tax, smaller government environment can be a boon to income mobility,” explains Vincent Geloso, senior economist at the MEI and co-author of the study. “By getting government out of the way, Premier Ralph Klein’s reforms made it possible for many of Alberta’s poorest to climb up the income ladder more quickly.” Adjusted for inflation, per person government spending fell by 32% in Alberta between 1992 and 1997 under Klein. The government also enacted a series of market-friendly reforms, such as reducing regulation in the energy sector, privatizing crown corporations and cutting personal and corporate tax rates. Empirical analysis shows that by 2005, the after-tax per person income of the poorest 10% of Albertans had grown 73 percentage points faster over a five-year period than it would have without the reforms. The same analysis shows that the poorest Albertans were able to climb the income ladder an extra 0.8 deciles on average over five years thanks to the reforms. The authors explain this income growth resulted from the new opportunities that were created thanks to the reforms. “By reviewing its fiscal and regulatory burden, Alberta made it easier for Albertans to start a business or find a good job as its economy grew,” explains Geloso. “What this teaches us is that governments can help the least fortunate among us to improve their own lot by taxing and spending less.”In the paper, the authors say the Klein approach should be adopted, not feared."There is a common fear that in highly unequal societies, someone born in the poorest class will remain trapped there. This has motivated numerous calls for more government intervention in the economy, notably by increasing funding to education or social policies. Until fairly recently, little consideration was given to the role of pro-market reforms in promoting income mobility. The present study highlights their importance," the authors wrote."These lessons from Alberta tell us that it is possible to promote income mobility and improve the lot of the poor without increasing taxes and spending. What matters most is removing hurdles that make it difficult for people to help themselves. Other Canadian provinces would do well by their most vulnerable residents to consider enacting similar reforms."The MEI is an independent public policy think tank with offices in Montreal and Calgary. Through its publications, media appearances and advisory services to policy-makers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.
