Sharing the Wealth from Growth: Comparing the Canadian and Us Experiences

The purpose of this paper is to compare Canadian and US performances with respect to economic growth and inequality. We find that Canada, with little economic growth in the past two decades (in fact, negative in the most recent decade), has had an increase in inequality of market income (in the absence of government taxes and money transfers), but almost no increase in inequality of after-tax incomes (after deducting taxes and adding money transfers). This experience is remarkably different than that of the United States. The United States has grown more quickly than Canada but inequality in income in that country has increased on both market income and an after-tax income basis. In fact, the increase in inequality in market income was similar in the United States as in Canada, even though inequality is greater in the United States. We find that after accounting for time trends, average market income and inequality are negatively correlated in both Canada and the US, while after-tax income and inequality are negatively related in Canada and positively related in the US. Tests suggest that changes in market income are " Granger causing " changes in market income inequality in Canada Although the above suggests that one of the major differences in Canadian and US experiences is that Canadian governments have been more " equalizing " than US governments, a number of factors should be considered when analyzing the data. We discuss how policy and non-policy factors need to be explored further to understand better the relationship between economic growth and inequality.