Montreal, February 22, 2018 – Despite the widely covered statements of groups like Oxfam decrying wealth disparities, the empirical data show that economic growth, far from benefiting only a small group of elites, allows millions of people to climb out of poverty each year in Canada and elsewhere, as shown in a publication launched today by the MEI.
“The numbers are clear: Growth increases everyone’s income, including those at the bottom of the ladder,” says Alexandre Moreau, Public Policy Analyst at the MEI and co-author of the publication. “The economic facts once again debunk the popular belief that growth only benefits the rich,” he adds.
One study, looking at 58 countries, found that 10% annual GDP growth is associated with a 10% increase in the incomes of the bottom 40%. In Canada, the substantial growth experienced in recent decades has been accompanied by an impressive reduction in poverty.
The portion of the population in a low income situation went from 13% in 1985 to a little over 9% in 2015, a drop of nearly a third in just 30 years. “The biggest reduction was experienced by women, and as a result, the historical gap between men and women has almost entirely disappeared,” adds Alexandre Moreau.
The publication also presents data showing that people in situations of poverty do better in wealthier provinces. In general, the richer a province is, the shorter the amount of time that people remain in poverty.
While some social programs have positive effects on social mobility, increased spending on these programs is not always associated with falling poverty. “Public spending that is too high can lead to deficits or an increased tax burden, which undermines economic growth and, ultimately, poverty reduction,” explains Kevin Brookes, Public Policy Analyst at the MEI and co-author of the publication.
“In light of these data, one thing seems clear: The best way to reduce poverty is not to dwell on income inequality at a specific point in time, but rather to favour wealth-creating public policies like reducing the tax burden, liberalizing trade and the labour market, and fighting corruption. Because economic growth benefits the entire population, including the least fortunate,” concludes Michel Kelly-Gagnon, President and CEO of the MEI.
The Viewpoint entitled “Does Economic Growth Benefit the Poor?” was prepared by Alexandre Moreau and Kevin Brookes, Public Policy Analysts at the MEI. This publication is available on our website.
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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.
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