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Financing Confederation Revisited: The Economic State of the Federation

In: The State of Economics in Canada: Festschrift in Honour of David Slater

  • Robin Boadway

Robin Boadway examines the development of fiscal arrangements and considers the substantial fiscal decentralization that has occurred in Canada over the past 20 years. Boadway makes the case that the fiscal arrangements have played an important role in improving the performance of the Canadian economy with respect to both equity and efficiency. But he also observes that over this period our federation has become the most decentralized federation in the world. Looking forward, he sees major challenges facing the fiscal arrangements. The equalization system and the political will to maintain it are in peril at the same time as disparities are likely to increase. The federal government has effectively lost control of the spending power, which has historically been one of the most powerful instruments at the hands of the federal government for managing the federation. This has left the federal government with no effective mechanism for managing the economic union. The income tax system is becoming disharmonized as provinces are engaged in competitive reductions in income tax progressivity. Attempts to arrive at cooperative solutions by federal-provincial negotiation have not been successful. Boadway believes that the decentralized Canadian federation could evolve into one in which the provinces behave “cooperatively” with respect to the national objectives of equity and efficiency. However, he sees little evidence that this is happening, and argues that an overall vision is needed. Unfortunately, Canada does not have an institution like the former Economic Council that is currently capable of developing such a vision.

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This chapter was published in: Patrick Grady & Andrew Sharpe (ed.) The State of Economics in Canada: Festschrift in Honour of David Slater, Centre for the Study of Living Standards, pages 37-56, 2001.
This item is provided by Centre for the Study of Living Standards in its series The State of Economics in Canada: Festschrift in Honour of David Slater with number 03.
Handle: RePEc:sls:secfds:03
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  1. William G. Watson, 1986. "An Estimate of the Welfare Gain from Fiscal Equalization," Canadian Journal of Economics, Canadian Economics Association, vol. 19(2), pages 298-308, May.
  2. BOADWAY, Robin & MARCHAND, Maurice & VIGNEAULT, Marianne, . "The consequences of overlapping tax bases for redistribution and public spending in a federation," CORE Discussion Papers RP -1326, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Robin W. Boadway & Frank R. Flatters, 1982. "Efficiency and Equalization Payments in a Federal System of Government: A Synthesis and Extension of Recent Results," Canadian Journal of Economics, Canadian Economics Association, vol. 15(4), pages 613-33, November.
  4. Robin Boadway & Michael Keen, 1996. "Efficiency and the optimal direction of federal-state transfers," International Tax and Public Finance, Springer, vol. 3(2), pages 137-155, May.
  5. Michael Baker & Abigail Payne, 1998. "An empirical study of matching grants: The "cap on CAP"," Working Papers msmart-98-03, University of Toronto, Department of Economics.
  6. Bev Dahlby, 1996. "Fiscal externalities and the design of intergovernmental grants," International Tax and Public Finance, Springer, vol. 3(3), pages 397-412, July.
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