Income Mobility, Austerity and Liberalization: Evidence from Alberta's Reforms in the 1990s

Abstract

In 1992, Ralph Klein became premier of Alberta. Upon taking office and securing re-election, he initiated major economic reforms and draconian austerity measures that were accompanied by important deregulation. Eventually, corporate taxes were slashed and a flat income tax replaced the provincial progressive income tax. Combined, these reforms pushed Alberta from the 49th position in the ranking of economic freedom of all states and provinces in North America in 1990 to the 1st position by 2009. Did these reforms benefit those at the bottom of the income distribution? To answer this question, we use a wide array income mobility measures in the framework of synthetic control methods. We test whether people in the bottom decile of the income distribution experienced absolute (i.e., income increases) or/and relative (i.e., decile jumps) mobility. We find that the reforms were a major boost to all measures income mobility.

Keywords: Income Mobility, Alberta, Austerity