Fiscal Equalization

"Fiscal Federalism and Equalization Policy in Canada is a concise book that aims to increase public understanding of equalization and fiscal federalism by providing a comparative and multidisciplinary perspective on the history, politics, and economics of equalization policy in Canada. The authors provide a brief history of the equalization program, a discussion of key economic debates concerning the role of that program and its effects, an analysis of the politics of equalization as witnessed over the last decade, and an exploration of the relationship between equalization and other components of fiscal federalism, particularly the Canada Health Transfer and the Canada Social Transfer. The result is an analysis of equalization that draws from the best scholarship available in the fields of economics, economic history, political science, public policy, and political sociology."--

In this book, experts from across the globe highlight the state of knowledge in intergovernmental transfer design. The essays collected in the volume represent creative new thinking about challenging policy issues and offer useful options for policy makers. The book offers academics and practitioners a thorough, thematic assessment of unresolved issues in the design of equalization grants.

Fiscal Federalism and Equalization Policy in Canada aims to increase public understanding of equalization and fiscal federalism by providing a comparative and multidisciplinary perspective on the history, politics, and economics of equalization policy in Canada. The authors provide a brief history, an analysis of the politics of equalization as witnessed over the last fifteen years, and a discussion of key economic debates concerning the role of the program and its effects. They also explore the relationship between equalization and other components of fiscal federalism, particularly the Canada Health Transfer and the Canada Social Transfer. The result is an analysis that draws from the best scholarship available in the fields of economics, economic history, political science, political sociology, and public policy.

The fiscal equalization program is one of the cornerstones of Canadian fiscal federalism. The proceedings of a conference held in May 1997, this collection of papers and commentaries focuses on a range of issues and implications surrounding the evolution, structure, and reform of the equalization program. Papers include a survey of the principles against which the equalization program ought to be evaluated, an assessment of the functioning of the program as presently structured, a consideration of the political climate within which the commitment to fiscal equalization will find its definition, a response to the proposition that there is too much equalization in Canada through an examination of the degree of interprovincial revenue redistribution resulting from the program, and a comparison with the German, Australian, and United States federations in search of lessons for Canada. Contributors include Robin Boadway (Queen's), Doug Clark (formerly of the Department of Finance), David Milne (UPEI), Paul Hobson (Acadia), and Sam Wilson (Alberta). Commentaries are provided by Tom Courchene (Queen's), François Vaillancourt (Montréal), and Wade Locke (Memorial).

The study includes a useful historical perspective on Canadian fiscal federalism and a program-by-program review of the system's key features. Drawing on this analysis, the authors present innovative proposals for reform of EPF and the CAP.

This commentary develops a set of general design and implementation principles that will allow some progress toward reforming fiscal federalism for the next century while incorporating sufficient flexibility to accommodate alternative paths for the broader evolution of Canada's economy and society. The first part focuses on a set of initial conditions that will inform the development of transfer principles. Also included here is an assessment of where Canada currently stands with respect to key intergovernmental transfer programs. The rest of the commentary is devoted to isolating transfer design and implementation principles, with major focus on the equalization program. The second part offers two principles or rationales for equalization: a federal rationale and a citizenship rationale. This is followed by a brief review of the history of the equalization formula and how this evolution accords with those two princples. The third part attempts to debunk several key assumptions of the unitary state, closed economy model found in the prevailing equalization literature. The fourth part develops a set of implementation principles and indicates a series of design faults with respect to the status quo. Issues addressed include the appropriate equalization standard, fiscal neutrality, expenditure needs, the resource-rent challenge, and the erosion of the stabilization component of transfers.

Intergovernmental fiscal transfers are a dominant feature of subnational finance in most countries. They are used to ensure that revenues roughly match the expenditure needs of various orders (levels) of subnational governments. They are also used to advance national, regional, and local area objectives, such as fairness and equity, and creating a common economic union. The structure of these transfers creates incentives for national, regional, and local governments that have a bearing on fiscal management, macroeconomic stability, distributional equity, allocative efficiency, and public services delivery. This paper reviews the conceptual, empirical, and practice literature to distill lessons of policy interest in designing the fiscal transfers to create the right incentives for prudent fiscal management and competitive and innovative service delivery. It provides practical guidance on the design of performance-oriented transfers that emphasize bottom-up, client-focused, and results-based government accountability. It cites examples of simple but innovative grant designs that can satisfy grantors' objectives while preserving local autonomy and creating an enabling environment for responsive, responsible, equitable, and accountable public governance. The paper further provides guidance on the design and practice of equalization transfers for regional fiscal equity as well as the institutional arrangements for implementation of such transfer mechanisms. It concludes with negative (practices to avoid) and positive (practices to emulate) lessons from international practices.

The authors of this book have worked independently and opinions expressed by them are, therefore, their own, and do not necessarily reflect the opinions of the supporters or the trustees of The Fraser Institute. [...] She is co-author of the An Empir- ical Comparison of Labour Relations Laws in Canada and the United States (2006), Union Disclosure in Canada and the United States (2006), Fiscal Per- formance Index (2006), Tax Freedom Day (2006), Canadian Provincial In- vestment Climate Report (2006), Transparency of Labour Relations Boards in Canada and the United States (2005), and the State of the Urban Air in [...] We would like to acknowledge all of the scholars who provided peer review of this study: Professor Ron Knee- bone of the University of Calgary, Professor Richard Bird of the University of Toronto, Professor Barry Cooper of the University of Calgary, Gordon Gibson who is a Senior Fellow of the Fraser Institute, Professor Bev Dahlby of the University of Alberta and a member of the Fraser Institute's [...] In addition, we would like to thank Nadeem Esmail, the Director of Health Performance Studies at the Fraser Institute and Fred McMahon the Director of Globalization and Trade at the Fraser Institute and the author of 2 books on the topic of fiscal balance and equalization for their review of a number of working drafts. [...] Figure 1.2 illustrates the nominal net fiscal balance (surplus or deficit) for the federal government and all of the provincial and territorial governments (consolidated) between 1990/91 and 2005/06. The federal government begins the period with an enormous deficit of $32.4 billion while the provinces had a much lower, collective deficit of $7.6 billion.