Effective Tool or Effectively Hollow? Balanced Budget Legislation in Western Canada

Two decades have passed since the first wave of balanced budget legislation (BBL) in Canada. This passage of time and the recent economic downturn afford researchers the opportunity to evaluate the success of these regulations in encouraging fiscal responsibility. This paper provides both a quantitative analysis of the impact of BBL on expenditure growth and a qualitative assessment of BBL in Western Canada as these four western provinces confronted the Great Recession of 2008-09. On both accounts, our analysis suggests that BBL did not fare particularly well in terms of its original objectives. Our empirical analysis shows that BBL had no discernible effect in restraining expenditure growth relative to revenue growth in most provinces, leaving them in a vulnerable fiscal position to avert deficits during economic recession. We illustrate this vulnerability among Western Canadian governments when confronted with the Great Recession. In other words, BBL was neither strong enough to limit expenditure growth during the good times nor adequate to prevent governments from choosing to run deficits during the bad times. Our analysis suggests that, like any piece of legislation, BBL is only as effective as the political will and public support surrounding it.