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Home Policy Articles: Fiscal & Budgetary: Fiscal Federalism


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Will We Rise to the Challenge? Eight Mega Issues Facing Canada popular

This briefing tracks eight key trends that are having a major impact on Canada’s business and public policy environment. Charles Barrett and Anne Golden point to the global economy and the consequences of competition from developing countries. They examine Canada’s relationship with the United States and the competing priorities of defence and trade. They also look at the need for investment in human capital and innovation for Canada to compete on the global stage, as well as the importance of addressing climate change and environmental issues.

An Examination of the Interaction between Natural Resource Revenues and Equalization Payments: Lesso

In this unrefereed working paper, Wade Locke and Paul Hobson discuss the contentious issue of equalization payments and the effect that revenues from natural resources can have on them.

Anyone Got a Plan?

As a result of Hurricane Katrina, governments worldwide have scrutinized their emergency response plans for natural disasters. However, Michael Mendelson cautions, they have failed to plan for another type of emergency: an economic slump likely to happen within the next two to three years.

Building Prosperity in a Canada Strong and Free

This is the fourth part of former Ontario Premier Mike Harris and former Reform leader Preston Manning’s vision for a stronger Canada. In this report, Harris and Manning discuss optimizing the size of government, reducing taxation, and eliminating inter-provincial trade barriers and excessive regulation.

Canada's Fiscal Advantage

This book compares the fiscal systems of Canada and the United States so as to challenge the traditionally held view that Canada's fiscal system is not competitive with that of the U.S.

Canada's Fiscal Advantage

In this book Joe Ruggeri and Jennifer McMullin argue that, contrary to a widely held view, Canada’s fiscal system is competitive with that of the United States.

Canadian Conundrums: Views from the Clifford Clark Visiting Economists

This Communiqué includes a look at the Table of Contents, Foreword, and Introduction to the book Canadian Conundrums, edited by Robert Brown. In his introduction, Brown explains that the purpose of the book is to bring the insights of past Clifford Clark Visiting Economists to a broader audience. Topics included in the volume range from fiscal balance to taxation.

Caring for Canadians in a Canada Strong and Free

Former Ontario Premier Mike Harris and former Reform Party leader Preston Manning discuss the “vision deficit” and “policy deficit” they consider to be evident in Canadian politics, particularly at the federal level.

Confiscatory Equalization: The Intriguing Case of Saskatchewan's Vanishing Energy Revenues

In this article Thomas J. Courchene considers what he views as the unfortunate situation of Saskatchewan resource revenues � revenues which have affected equalization payments such that the province faces a tax-back rate (by the federal government) of over 100 percent.

Dealing With the Fiscal Imbalances: Vertical, Horizontal and Structural

In this Working Paper Bev Dahlby discusses fiscal imbalances on three levels: she defines vertical fiscal imbalances as those between two tiers of government; horizontal imbalances are those that exist across a single tier of government; structural imbalances occur in the tax and expenditure ‘mix.’ The author considers each of these issues in turn.

Debt Accumulation, Debt Reduction, and Debt Spillovers in Canada, 1974-98

To a certain degree, the amount of debt a government accumulates is beyond its control. Recession means a loss of tax revenue, an increase in certain expenditures and an increase in debt. Debt accumulation from this source should, however, be of limited duration.

Economic Freedom of North America: 2005 Annual Report

The basic premise of this report by Amela Karabegović and Fred McMahon is that economic freedom is the most successful driver of economic growth and prosperity. Accordingly, the authors begin by explaining that provinces and states that do not encourage economic freedom though their policies are hindering prosperity within their borders.


Gary Tompkins assesses Canada’s equalization program, and specifically how it affects Saskatchewan. The equalization program aims to ensure that all provinces have the ability to provide equivalent levels of public services at equivalent levels of taxation.

Equalization and the Treatment of Non-renewable Resources

In Equalization and the Treatment of Non-renewable Resources, Paul Hobson analyzes proposals for the inclusion and exclusion of natural resources from Canada’s equalization payment system. According to Hobson, equalization is usually justified on two fronts: 1) it allows for an efficient allocation of mobile factors of production within federations, and 2) it establishes equity between provinces. To evaluate equalization, he posits, is a complex question of costs and benefits. Hobson therefore devotes a portion of his analysis to the theoretical case for equalization and a review of equalization in the Canadian context. He follows by assessing proposals for the treatment of natural resources in equalization, concluding his examination with a discussion of the Atlantic Institute of Market Studies’ proposal to remove natural resources from the equalization formula.

Equalization Reform in Switzerland: Ideal Solutions, Unpredictable Outcomes

This paper summarizes and analyzes a 1999 report by the Swiss government and the cantons that presents the planned reform of the equalization system in Switzerland.

Equalization: Financing Canadians' Commitment to Sharing and Social Solidarity

Canada’s equalization program is an integral part of the financial foundation of our social programs, and of collective commitment of all Canadians to sharing and social solidarity. Equalization is a formula-based program of unconditional grants paid annually by the federal government to all provinces with a less-than-average tax capacity. According to Errol Black and Jim Silver, equalization payments ensure that all Canadians are able to enjoy reasonably comparable levels of public services, at comparable levels of taxation.

Equalization: Neither Welfare Trap or Helping Hand

Annette Ryan’s paper Equalization: Neither Welfare Trap or Helping Hand was prepared in response to a 2001 conference entitled Equalization: Welfare Trap or Helping Hand? Ryan rejects the assumptions in the conference title, arguing equalization is instead a reasonable approach for delivering public services in a widely dispersed country. Equalization is not, she asserts, an economic development program meant to eliminate differences in production or opportunity across provinces. It is simply meant to deliver reasonably comparable services at comparable levels of taxation.

Federal Debt Repayment as an Instrument of Fiscal Centralization

Since the federal government achieved its debt reduction target in 1997, it has enjoyed budget surpluses. These surpluses are projected to increase over the next several years.

Federal Grants Under the Discipline of Global Forces

Federal Grants Under the Discipline of Global Forces, by Michel Boucher and Jean-Luc Migué, examines the hypothesis that a more open economy leads to the destabilization of what the authors call the ‘political cartel’ of federalism. According to Boucher and Migué, federalism requires political collusion to remain stable. In their view, the federal government induces this collusion, providing provinces with equalization payments and other forms of grant money. The authors argue, however, that as economies become more open (that is, free from government regulation), increased competition will act as a powerful force against this form of political collusion because capital and labour will enjoy the freedom of moving to new markets. After providing empirical evidence for their hypothesis, Boucher and Migué conclude the result will be decreased levels of equalization funding in Canada.

Federal Transfers: Principles, Practice, and Prospects

In this short Working Paper Michael Smart discusses federal transfer payments in Canada and suggests large-scale changes to the system are required. Smart points to the use of bilateral fiscal agreements; he considers them to be unstable, ad hoc solutions to the problem of meeting the disparate needs of Canada’s various provinces. In Smart’s view, this use of “chequebook federalism” has led to a destabilization of Canada’s public finances.

Federal-Provincial Transfers for Social Programs in Canada: Their Status in May 2004

Stephen Laurent and Francois Vaillancourt wrote this unrefereed working paper to explore the structure of federal funding arrangements for social programs in Canada.

Fiscal Equalization Revisited

Fiscal Equalization Revisited is a recap of Nobel Laureate James Buchanan’s keynote address to a conference entitled Equalization: Welfare Trap or Helping Hand? Buchanan stresses he is not an expert on the Canadian fiscal situation; rather, his presentation is an abstract discussion of equalization. In it, Buchanan argues that the benefits of equalization are based on his belief that, without such a program, the over-concentration of resources in different regions would lead to unfair fiscal advantages for some provinces. Buchanan does, however, cite political difficulties with instituting and continuing an equalization program. These political difficulties, he concludes, may negate any overall gains of equalization for governments.

Fiscal Prospects for the Federal and Provincial/Territorial Governments

This study aims to project the federal Public Accounts and the overall provincial/ territorial government Public Accounts over the medium- and long-term.

Follow the Cash: Changing Equalization to Promote Sound Budgeting and Prosperity

In this short �Backgrounder,� Jack M. Mintz and Finn Poschmann argue for a change in the way the equalization program is implemented.

Good Policies for Bad Times

This Backgrounder by Shay Aba follows a seminar convened by the C.D. Howe Institute on February 1, 2002 pertaining to the themes of Canada’s “current and future economic conditions,” as well as “the roles of fiscal and monetary policy.” Those who attended the seminar called for moderate to average rates of growth, in concert with the downturn (at the time) in the global economy, and its anticipated recovery. With demand for stocks, and therefore stock prices, expected to rise, most attendees agreed that monetary policy, rather than fiscal policy, should be used to smooth out the business cycle.

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