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Are Equalization Payments Making Canadians Better Off? A Two-Dimensional Dominance Answer

Listed author(s):
  • Benoit Tarroux

    ()

    (GREQAM-IDEP and Université de la Méditerranée)

This paper provides a normative appraisal of the Canadian equalization transfers system. For that sake, the two-dimensional dominance criteria introduced by Atkinson and Bourguignon(RES, 1982) are used to compare the distributions of private and public good before and after equalization payments. As the distribution before equalization is not observable, one simulates it on the basis of various scenarios which specify both its financing by the federal government and its utilization by provincial governments. The results show that Canadian equalization payments never improve social welfare for all utilitarian social planners who believe that household convert public and private goods into well-being by a utility function belonging to the classes that corresponds to the Atkinson and Bourguignon criteria. A further parametric restriction on the class of utility functions however enables to get more precise results.

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Paper provided by Institut d'economie publique (IDEP), Marseille, France in its series IDEP Working Papers with number 0608.

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Length: 36 pages
Date of creation: 15 Nov 2006
Date of revision: 15 Nov 2006
Handle: RePEc:iep:wpidep:0608
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  8. BOADWAY, Robin & CUFF, Katherine & MARCHAND, Maurice, "undated". "Equalization and the decentralization of revenue-raising in a federation," CORE Discussion Papers RP 1610, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  12. GRAVEL, Nicolas & POITEVIN, Michel, 2004. "The Progressivity of Equalization Payments in Federations," Cahiers de recherche 2004-12, Universite de Montreal, Departement de sciences economiques.
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  17. Gamkhar, Shama & Oates, Wallace E., 1996. "Asymmetries in the Response to Increases and Decreases in Intergovernmental Grants: Some Empirical Findings," National Tax Journal, National Tax Association, vol. 49(4), pages 501-512, December.
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