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Cost-Sharing versus Block-Funding in a Federal System: A Demand Systems Approach

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  • Peter C. Coyte
  • Stuart Landon

Abstract

This paper employs a maximizing framework, consistent with the axioms of consumer preference, to analyze local government's choice of spending on different social services. Within this framework, it is possible to include both block-funding and cost-sharing intergovernment transfer schemes. Canada's movement to block-funding from the cost-sharing method of financing provincial expenditures on hospitals, medical care, and post-secondary education is analyzed. The results indicate that the provincial governments' actions are generally consistent with a significant maximizing model of consumer behavior and that the change to block-funding had a significant impact on real provincial funding of some previously cost-shared social services.

Suggested Citation

  • Peter C. Coyte & Stuart Landon, 1990. "Cost-Sharing versus Block-Funding in a Federal System: A Demand Systems Approach," Canadian Journal of Economics, Canadian Economics Association, vol. 23(4), pages 817-838, November.
  • Handle: RePEc:cje:issued:v:23:y:1990:i:4:p:817-38
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    Cited by:

    1. Bev Dahlby, 2011. "The marginal cost of public funds and the flypaper effect," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(3), pages 304-321, June.
    2. Brian Ferguson, 1996. "Expenditure on physicians' services in Canada: Was Medicare a structural change?," Health Economics, John Wiley & Sons, Ltd., vol. 5(5), pages 409-419, September.
    3. Craig, Steven G. & Howard, Larry L., 2014. "Is Medicaid crowding out other state government expenditure? Internal financing and cross-program substitution," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 164-178.
    4. George TRIDIMAS, 2006. "The economics and empirics of the allocation of public consumption expenditures," Departmental Working Papers 2006-02, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.

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