[Makarov]

Originally Posted by SeoulFire

There is a difference between understanding and not agreeing with them. Never have and probably never will believe in propping up the unsustainable and taking away any real incentive to improve or develop. There are also a number of good arguments/criticisms on why they do not work and are not efficient....

Nor have I ever believed in the ability of the federal government to construct any policies that are for the benefit of Canadians as a whole and not just the regions key to getting elected. The west always has and always will be neglected, ignored, or screwed as the voter strength is just not sufficient for the fed parties to care.

As noted already, Alberta was a net equalization recipient for a decade and yet was able to develop its economy enough to become the "Prairie Tiger" that it is today. Indeed, the author of the article I posted earlier comes to the following conclusions regarding the argument that equalization stifles innovation and growth or creates a culture of dependency in recipient provinces:

Concern has been expressed about Equalization causing recipient provinces to become dependent upon transfers and that Equalization ######s economic adjustment and growth. Here we look at some broad indicators that may provide evidence on this issue. All provinces have received Equalization at some time. However, only five provinces have consistently received Equalization during the existence of the program. Those provinces are Prince Edward Island, Nova Scotia, New Brunswick, Quebec and Manitoba. We call those the ‘core’ recipient provinces. Attention is focused on them because it is there that negative consequences should be most apparent.

First considered is the importance of Equalization payments to provincial revenues. That trend is shown in Figure 12, below. While there is some variation over the years,there does not appear to be any trend in the core recipient provinces towards greater dependency on Equalization payments as a source of provincial revenues.

Another indicator is the size of Equalization relative to gross domestic provincial product (GDPP). That trend is reported in Figure 13, below. Again, although there is some fluctuation, no trend is apparent. In particular, over a 29 year period, Equalization does not appear to be becoming a more important source of provincial output. But, neither is there evidence of it becoming less
important.

A lack of relative improvement in economic productivity – that is, a lack of convergence towards the mean – would be a better indicator of a detrimental impact of Equalization on the recipients’ economies. The trend in relative GDPP
is a measure that provides insight. However, the comparison is more complicated than might be anticipated. Alberta, especially, has experienced rapid growth and large increases in GDPP per capita during its latest boom. Swings in energy prices and the accompanying booms and busts are sufficiently large that even Canadian per capita GDP reflects those cycles and makes comparison to that national standard difficult to interpret. Hence, the first indicator of relative productivity reported here is the per capita GDPP of the core provinces as a percentage of GDP per capita in Canada excluding Alberta. That is shown in Figure 14, below, for the years 1981 to 2009. Despite resource booms in other provinces besides Alberta, there is a gradual upward trend suggesting that per capita GDPP in the core recipient provinces is improving. An alternate comparator is Ontario, a province with a productive economy although lacking in natural resource revenues. The trend relative to Ontario’s per capita GDPP is shown in Figure 15, below. That figure shows the recipient provinces’ per capita GDPP declining relative to Ontario’s during the 1980s but, after 1989, increasing and, over 20 years, moving from about 75 percent to 87 percent of the Ontario levels. Thus, the per capita GDPP indicators imply that the core recipients economies are improving relatively despite the fact that resource rich provincial economies, notably Alberta’s, are performing better.

Summarizing this section:
 The provincial governments and economies of the five core Equalization
recipient provinces do not appear to be becoming more dependent on
Equalization payments over the past 25 to 30 years.

 Rather than stagnating, the per capita GDPP figures suggest that the core
recipient provinces’ provincial economies are improving and improving
relatively.

LINK

Obviously, those conclusions are not gospel, but I don't see a lot of evidence that equalization acts as a disincentive to innovation or economic growth. Indeed, it may be that the opposite is true.