Equalization and Stabilization
The federal Equalization transfer program makes fiscal resources of "have-not" provinces depend on fiscal conditions in "have" provinces, which tends to destabilize provincial finances: the data show that equalized revenues of receiving provinces are more volatile than own-source revenues. But this reflects the revenue risks facing the aggregate of all provinces, which an equalization program cannot insure. Controlling for aggregate risk, I find that the program has a significant stabilizing effect on provincial finances. Nevertheless, some improvements in revenue-sharing through the program might be contemplated. For example, a return to a national average capacity standard, from the five-province standard which has been in place since 1982, would increase insurance for idiosyncratic shocks by about one-third.
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Volume (Year): 30 (2004)
Issue (Month): 2 (June)
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References listed on IDEAS
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- Robin Boadway & Masayoshi Hayashi, 2003.
"An Evaluation of the Stabilization Properties of Equalization in Canada,"
1015, Queen's University, Department of Economics.
- Robin Boadway & Masayoshi Hayashi, 2004. "An Evaluation of the Stabilization Properties of Equalization in Canada," Canadian Public Policy, University of Toronto Press, vol. 30(1), pages 91-109, March.
- Robin Boadway & Masayoshi Hayashi, 2002. "An Evaluation of the Risk-Sharing Function of Equalization in Canada," Working Papers 1006, Queen's University, Department of Economics.
- Townsend, R.M., 1991.
"Risk and Insurance in Village India,"
University of Chicago - Economics Research Center
91-3, Chicago - Economics Research Center.
- Robert M. Townsend, . "Risk and Insurance in Village India," University of Chicago - Population Research Center 91-3a, Chicago - Population Research Center.
- Michael Smart, 1998. "Taxation and Deadweight Loss in a System of Intergovernmental Transfers," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 189-206, February.
- Melitz, Jacques & Zumer, Frederic, 2002. "Regional redistribution and stabilization by the center in Canada, France, the UK and the US:: A reassessment and new tests," Journal of Public Economics, Elsevier, vol. 86(2), pages 263-286, November.
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