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A Fiscal Need Approach to Equalization


  • Anwar Shah


The existing fiscal equalization program in Canada attempts to equalize per capita tax burden alone and completely ignores the expenditure side. This paper examines the consequences of this neglect both conceptually as well as empirically. The paper concludes that a program of equalization that ignores the expenditure side cannot be defended on economic efficiency and equity grounds. Further, such a program might not be consistent with the constituional intent of equalization in Canada. The paper argues that the present system of equalization in Canada could be improved by explicitly recognizing relative expenditure needs of the Canadian provinces in the formula. The paper implements an objective methodology for measuring these needs and provides tentative calculations based on the proposed approach. The paper concludes that a fiscal needs based program of equalization would differ greatly from the present program in terms of its redistributive impact and further that under such a program the tota amount of equalization transfers made by the Federal Government might also be reduced.

Suggested Citation

  • Anwar Shah, 1996. "A Fiscal Need Approach to Equalization," Canadian Public Policy, University of Toronto Press, vol. 22(2), pages 99-115, June.
  • Handle: RePEc:cpp:issued:v:22:y:1996:i:2:p:99-115

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    References listed on IDEAS

    1. Anwar M. Chaudry-Shah, 1989. "A Capitalization Approach to Fiscal Incidence at the Local Level," Land Economics, University of Wisconsin Press, vol. 65(4), pages 359-375.
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    Cited by:

    1. Audun Langørgen, 2015. "A structural approach for analyzing fiscal equalization," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(3), pages 376-400, June.
    2. Anwar Shah, 2006. "A Practitioner´s Guide to Intergovernmental Fiscal Transfers," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 0(2), pages 128-186, July.
    3. Fenge, Robert & Meier, Volker, 2002. "Why cities should not be subsidized," Journal of Urban Economics, Elsevier, vol. 52(3), pages 433-447, November.
    4. Bev Dahlby & Ergete Ferede, 2016. "The stimulative effects of intergovernmental grants and the marginal cost of public funds," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(1), pages 114-139, February.
    5. Michael Smart & Juan Gonzalo Zapata & Juan Camilo Chaparro, 2004. "Transferencias intergubernamentales y finanzas municipales en Colombia," COYUNTURA ECONÓMICA, FEDESARROLLO, March.
    6. Fabio Sánchez Torres & Michael Smart & Juan Gonzalo Zapata Giraldo, 2002. "Intergovernmental transfers and municipal finance in Colombia," INFORMES DE INVESTIGACIÓN 002915, FEDESARROLLO.
    7. Shah, Anwar, 1991. "Perspectives on the design of intergovernmental fiscal relations," Policy Research Working Paper Series 726, The World Bank.
    8. Shah, Anwar & Shen, Chunli, 2006. "Reform of the intergovernmental transfer system in China," Policy Research Working Paper Series 4100, The World Bank.
    9. James Alm & Jorge Martinez-Vazquez, 2002. "On the Use of Budgetary Norms as a Tool for Fiscal Management," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0215, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    10. Chang Woon Nam & Rüdiger Parsche, 2001. "Looking for Appropriate Forms of Intergovernmental Transfers for Municipalities in Transition Economies," CESifo Working Paper Series 614, CESifo Group Munich.
    11. Anwar Shah, 2014. "Fiscal federalism and macroeconomic governance : for better or for worse?," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 200-240, May.
    12. Juan David Barón R. & Adolfo Meisel R., 2003. "La descentralización y las disparidades económicas regionales en Colombia en la década de 1990," COYUNTURA ECONÓMICA, FEDESARROLLO, September.
    13. Robert McLarty, 1997. "Econometric Analysis and Public Policy: The Case of Fiscal Need Assessment," Canadian Public Policy, University of Toronto Press, vol. 23(2), pages 203-208, June.
    14. Chang Woon Nam & Rüdiger Parsche, 2001. "Municipal Finance in Poland, the Slovak Republic, the Czech Republic and Hungary: Problems and Prospects," ERSA conference papers ersa01p162, European Regional Science Association.
    15. Jaime Bonet Morón, 2006. "Desequilibrios regionales en la política de descentralización en Colombia," Documentos de trabajo sobre Economía Regional y Urbana 77, Banco de la Republica de Colombia.
    16. Shah, Anwar, 2005. "Fiscal decentralization and fiscal performance," Policy Research Working Paper Series 3786, The World Bank.
    17. Santiago Lago-Peñas, 2008. "Estimating Spending Needs In Federal Countries: A Methodological Suggestion," Economics Bulletin, AccessEcon, vol. 8(4), pages 1-5.
    18. Juan Camilo Chaparro & Michael Smart & Juan Gonzola Zapata, 2004. "Intergovernmental Transfers and Municipal Finance in Colombia," International Tax Program Papers 0403, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
    19. Audun Langørgen & Rolf Aaberge, 1999. "A Structural Approach for Measuring Fiscal Disparities," Discussion Papers 254, Statistics Norway, Research Department.
    20. Shah, Anwar, 1998. "Balance, accountability, and responsiveness : lessons about decentralization," Policy Research Working Paper Series 2021, The World Bank.
    21. World Bank & European Commission & Food and Agriculture Organization & United Nations Children’s Fund & United Nations Development Program & World Health Organization, 2007. "Angola : Public Expenditure Review, Volume 2. Sectoral Review," World Bank Other Operational Studies 7648, The World Bank.
    22. Anwar Shah, 1999. "Governing for Results in a Globalised and Localised World," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 38(4), pages 385-431.
    23. Joaquín Mauricio Zuleta Arango & Lisandro López Marín & Daniel Sánchez García, 2010. "Descentralización Y Disparidades Económicas Territoriales En Colombia (1990-2005)," Observatorio de la Economía Latinoamericana, Grupo (Universidad de Málaga), issue 130, April.

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