The Political Economy of Inter-Regional Fiscal Flows
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The Political Economy of Inter-Regional Fiscal Flows

Measurement, Determinants and Effects on Country Stability

  • Studies in Fiscal Federalism and State–local Finance series

Edited by Núria Bosch, Marta Espasa and Albert Solé Ollé

Struggles over what a region receives, or should receive, from the budget of the central government are common to many countries. Discussions often focus on the measures of ‘net fiscal flows’ or ‘fiscal balances’ provided by the government or other actors. This unique book shows just how these flows are computed then interpreted and clarifies the often misunderstood economic and political motives that explain why some regions receive more monies than others.
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Chapter 6: Inter-regional Fiscal Flows: Canada

Giuseppe C. Ruggeri

Extract

6. 1 Inter-regional fiscal flows: Canada Giuseppe C. Ruggeri INTRODUCTION The fiscal activity of the federal government in Canada is quite pervasive. It affects the income of individuals and families across the country and the capacity of provincial and municipal governments to finance their spending responsibilities. Because Canadian provinces differ with respect to size, population, resource endowments, and economic performance, the combination of federal direct spending and intergovernmental transfers generates income redistribution from the richer to the less affluent provinces. Measuring the net federal fiscal flows to the provinces has been the subject of periodic studies. An early study by Banks (1977) calculated the provincial distribution of federal expenditures for fiscal years from 1972–3 to 1974–5 and concluded that only the four Atlantic Provinces plus Manitoba and Saskatchewan received above-average federal per capita expenditures. Glynn (1979) estimated net federal fiscal balances for fiscal year 1974–5 through a three-step approach. First, he allocated federal revenues among provinces, then he allocated expenditures in proportion to revenues, and finally, he subtracted these counterfactual federal expenditures from the actual expenditures to identify gainers and contributors. Glynn found that the smaller provinces were the net gainers. McCracken (1993) estimated full federal fiscal balances for the period from 1961 to 1991. A comparison among different years is complicated by the different budget positions of the federal government, which moved from small surpluses in the earlier years to deficits of increasing amounts in the later years. For example, in 1991, all provinces except Alberta...

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