Federal finance and fiscal federalism: The two worlds of Canadian public finance

Canadian Public Administration

Volumn 41, Issue 1, 1998, Pages 51-74

  Bird, Richard M ^a   Chen, Duan Jie ^a  

^a NONE

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[No Author keywords available]

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EID: 0005074030     PISSN: 00084840     EISSN: None     Source Type: Journal    
DOI: 10.1111/j.1754-7121.1998.tb01527.x     Document Type: Article

References (49)

1. See Paul Boothe and B. Johnston, Stealing the Emperor's Clothes: Deficit Off-loading and National Standards in Health Care (Toronto: C.D. Howe Institute, 1993).
2. The classical treatment is Wallace E. Oates, Fiscal Federalism (New York: Harcourt Brace Jovanovich, 1972). For an application to Canada, see Robin W. Boadway and Paul A.R. Hobson, Intergovernmental Fiscal Relations in Canada (Toronto: Canadian Tax Foundation, 1993).
3. The classical treatment is Wallace E. Oates, Fiscal Federalism (New York: Harcourt Brace Jovanovich, 1972). For an application to Canada, see Robin W. Boadway and Paul A.R. Hobson, Intergovernmental Fiscal Relations in Canada (Toronto: Canadian Tax Foundation, 1993).
4. See the interesting discussions of related questions in Paul A.R. Hobson and France St-Hilaire, eds., Urban Governance and Finance (Montreal: Institute for Research on Public Policy, 1997).
5. Although some economists might not accept this proposition, it is argued in detail in, for example, Richard M. Bird, Central-Local Fiscal Relations and the Provision of Urban Public Services (Canberra: Australian National University Press for the Centre for Research on Federal Financial Relations, 1980).
6. The classic analysis along these lines is Jack Wiseman, "The Political Economy of Federalism: A Critical Appraisal," Environment and Planning C: Government and Policy 5, no. 4 (1987), pp. 383-410. For application to the tax harmonization and common market cases, see Richard M. Bird, "Tax Harmonization in Federations and Common Markets," in Manfred Neumann, ed., Public Finance and Performance of Enterprises (Detroit: Wayne State University Press, 1989), pp. 139-51.
7. The classic analysis along these lines is Jack Wiseman, "The Political Economy of Federalism: A Critical Appraisal," Environment and Planning C: Government and Policy 5, no. 4 (1987), pp. 383-410. For application to the tax harmonization and common market cases, see Richard M. Bird, "Tax Harmonization in Federations and Common Markets," in Manfred Neumann, ed., Public Finance and Performance of Enterprises (Detroit: Wayne State University Press, 1989), pp. 139-51.
8. See Herman Bakvis, ed., Representation, Integration, and Political Parties in Canada (Toronto: Dundurn Press, 1991).
9. For recent analysis along this line, see Jacques Crémer, Antonio Estache and Paul Seabright, "The Decentralization of the Public Sector: Lessons from the Theory of the Firm," in Antonio Estache, ed., Decentralizing Infrastructure: Advantages and Limitations. World Bank Discussion Paper 290 (Washington: World Bank, 1995).
10. Richard Simeon, Federal-Provincial Diplomacy (Toronto: University of Toronto Press, 1972).
11. For a preliminary analysis along these lines, see Daniel Berkowitz, "Nationalism and Secession." Working Paper 293, Department of Economics, University of Pittsburgh, October 1994.
12. In the famous phrase of Kenneth C. Wheare, in a federal system "each [government is], within a sphere, co-ordinate and independent." See Federal Government, 4th edition (London: Oxford University Press, 1963), p. 10.
13. Of course, this comment may be applied well beyond the field of federal finance. As Gary J. Miller, "The Impact of Economics on Contemporary Political Science," Journal of Economic Literature 35, no. 3 (September 1997), pp. 1173-1204, has recently noted, an interesting, and promising, effect on economists of their "imperialistic" advance into the realm of political science has been increasing awareness of the need to understand and analyse such institutional realities as social norms and conventions as well as political and bureaucratic processes.
14. See Ronald Watts, Comparing Federal Systems in the 1990s (Kingston: Institute of Intergovernmental Relations, Queen's University 1996).
15. Richard M. Bird, "A Comparative Perspective on Federal Finance," in Keith G. Banting, Douglas M. Brown and Thomas J. Courchene, eds., The Future of Fiscal Federalism (Kingston: School of Public Policy, Queen's University, 1994).
16. See, for example, the discussion in Boadway and Hobson, Intergovernmental Fiscal Relations in Canada, Chapter 3.
17. No precise definition or measurement of "centralization" is provided here: for a sceptical view of the usefulness of such measurements, see Richard M. Bird, "On Measuring Fiscal Centralization and Fiscal Balance in Federal States," Environment and Planning C: Government and Policy 4, no. 4 (1986), pp. 389-404.
18. The following discussion is highly selective and does not pretend to present anything like a complete picture of these complex subjects. Aspects of earlier discussions by one of the present authors have been freely drawn upon in what follows: on federal-provincial transfers, see Richard M. Bird, "Federal-Provincial Transfers in Canada: Retrospect and Prospect," Canadian Tax Journal 35, no. 1 (January/February 1987), pp. 118-33; and "Federal- Provincial Fiscal Arrangements: Is There an Agenda for the 1990s?" in Ronald Watts and Douglas M. Brown, eds., Canada: The State of the Federation 1990 (Kingston: Institute of Intergovernmental Relations, Queen's University, 1990); on federal and provincial debt, see Financing Canadian Government: A Quantitative Overview (Toronto: Canadian Tax Foundation, 1979); on federal and provincial taxes, see "Federal-Provincial Taxation in Turbulent Times," CANADIAN PUBLIC ADMINISTRATION 36, no. 4 (Winter 1993), pp. 479-96; and on all these issues at the provincial-municipal level, see Richard M. Bird and N. Enid Slack, Urban Public Finance in Canada, 2nd edition (Etobicoke: John Wiley and Sons Canada, 1993).
19. The following discussion is highly selective and does not pretend to present anything like a complete picture of these complex subjects. Aspects of earlier discussions by one of the present authors have been freely drawn upon in what follows: on federal-provincial transfers, see Richard M. Bird, "Federal-Provincial Transfers in Canada: Retrospect and Prospect," Canadian Tax Journal 35, no. 1 (January/February 1987), pp. 118-33; and "Federal-Provincial Fiscal Arrangements: Is There an Agenda for the 1990s?" in Ronald Watts and Douglas M. Brown, eds., Canada: The State of the Federation 1990 (Kingston: Institute of Intergovernmental Relations, Queen's University, 1990); on federal and provincial debt, see Financing Canadian Government: A Quantitative Overview (Toronto: Canadian Tax Foundation, 1979); on federal and provincial taxes, see "Federal-Provincial Taxation in Turbulent Times," CANADIAN PUBLIC ADMINISTRATION 36, no. 4 (Winter 1993), pp. 479-96; and on all these issues at the provincial-municipal level, see Richard M. Bird and N. Enid Slack, Urban Public Finance in Canada, 2nd edition (Etobicoke: John Wiley and Sons Canada, 1993).
20. The following discussion is highly selective and does not pretend to present anything like a complete picture of these complex subjects. Aspects of earlier discussions by one of the present authors have been freely drawn upon in what follows: on federal-provincial transfers, see Richard M. Bird, "Federal-Provincial Transfers in Canada: Retrospect and Prospect," Canadian Tax Journal 35, no. 1 (January/February 1987), pp. 118-33; and "Federal- Provincial Fiscal Arrangements: Is There an Agenda for the 1990s?" in Ronald Watts and Douglas M. Brown, eds., Canada: The State of the Federation 1990 (Kingston: Institute of Intergovernmental Relations, Queen's University, 1990); on federal and provincial debt, see Financing Canadian Government: A Quantitative Overview (Toronto: Canadian Tax Foundation, 1979); on federal and provincial taxes, see "Federal-Provincial Taxation in Turbulent Times," CANADIAN PUBLIC ADMINISTRATION 36, no. 4 (Winter 1993), pp. 479-96; and on all these issues at the provincial-municipal level, see Richard M. Bird and N. Enid Slack, Urban Public Finance in Canada, 2nd edition (Etobicoke: John Wiley and Sons Canada, 1993).
21. The following discussion is highly selective and does not pretend to present anything like a complete picture of these complex subjects. Aspects of earlier discussions by one of the present authors have been freely drawn upon in what follows: on federal-provincial transfers, see Richard M. Bird, "Federal-Provincial Transfers in Canada: Retrospect and Prospect," Canadian Tax Journal 35, no. 1 (January/February 1987), pp. 118-33; and "Federal- Provincial Fiscal Arrangements: Is There an Agenda for the 1990s?" in Ronald Watts and Douglas M. Brown, eds., Canada: The State of the Federation 1990 (Kingston: Institute of Intergovernmental Relations, Queen's University, 1990); on federal and provincial debt, see Financing Canadian Government: A Quantitative Overview (Toronto: Canadian Tax Foundation, 1979); on federal and provincial taxes, see "Federal-Provincial Taxation in Turbulent Times," CANADIAN PUBLIC ADMINISTRATION 36, no. 4 (Winter 1993), pp. 479-96; and on all these issues at the provincial-municipal level, see Richard M. Bird and N. Enid Slack, Urban Public Finance in Canada, 2nd edition (Etobicoke: John Wiley and Sons Canada, 1993).
22. The following discussion is highly selective and does not pretend to present anything like a complete picture of these complex subjects. Aspects of earlier discussions by one of the present authors have been freely drawn upon in what follows: on federal-provincial transfers, see Richard M. Bird, "Federal-Provincial Transfers in Canada: Retrospect and Prospect," Canadian Tax Journal 35, no. 1 (January/February 1987), pp. 118-33; and "Federal- Provincial Fiscal Arrangements: Is There an Agenda for the 1990s?" in Ronald Watts and Douglas M. Brown, eds., Canada: The State of the Federation 1990 (Kingston: Institute of Intergovernmental Relations, Queen's University, 1990); on federal and provincial debt, see Financing Canadian Government: A Quantitative Overview (Toronto: Canadian Tax Foundation, 1979); on federal and provincial taxes, see "Federal-Provincial Taxation in Turbulent Times," CANADIAN PUBLIC ADMINISTRATION 36, no. 4 (Winter 1993), pp. 479-96; and on all these issues at the provincial-municipal level, see Richard M. Bird and N. Enid Slack, Urban Public Finance in Canada, 2nd edition (Etobicoke: John Wiley and Sons Canada, 1993).
23. See Richard A. Musgrave, "Who Should Tax, Where, And What?" in Charles E. McLure Jr., ed., Tax Assignment in Federal Countries (Canberra: Centre for Research on Federal Financial Relations, Australian National University, 1983).
24. Increasingly, however, some provinces - most recently, Ontario - are beginning to encroach even on the property tax, usually to finance education. Such creeping provincialization may bode ill for this last vestige of tax separation in Canada.
25. As a prominent municipal law expert recently said with respect to Ontario: "The status of municipalities historically is one of creatures of the province, which are organized, financed and empowered in a manner that make it very difficult for them to function as real governments independent of the province; ... there are no legislative changes now enacted which will enhance the ability of municipalities to function independently of the province in the future and fulfill a role as a full policy making government." Stanley M. Makuch, "The Harris Government and Muncipalities." Paper presented to the Centre for the Study of State and Market, University of Toronto, 10 October 1997.
26. Bird and Slack, Urban Public Finance in Canada, p. 138.
27. Enid Slack, "Financing Infrastructure: Evaluation of Existing Research and Information Gaps." Draft report prepared for the Canada Mortgage and Housing Corp., April 1996.
28. For a recent detailed discussion of user-fees, see Richard M. Bird and Thomas Tsiopoulos, "User Charges for Public Services: Problems and Potentials," Canadian Tax Journal 45, no. 1 (January/February 1997), pp. 25-86.
29. For a detailed discussion, see Harry Kitchen, Local Government Finance in Canada (Toronto: Canadian Tax Foundation, 1984), Chapter 6.
30. Bird and Slack, Urban Public Finance in Canada, p. 105.
31. Of course, from many perspectives, local reorganization may well have been a good idea. But that is not the point here.
32. Ibid., p. 14.
33. Calculations are from data in Karin Treff and David B. Perry, 1996 Finances of the Nation (Toronto: Canadian Tax Foundation, 1997).
34. See Bird, "Federal-Provincial Taxation in Turbulent Times," CANADIAN PUBLIC ADMINISTRATION, p. 484.
35. See Pierre-Pascal Gendron, Jack M. Mintz and Thomas A. Wilson, "VAT Harmonization in Canada: Recent Developments and the Need for Flexibility," International VAT Monitor 7 (1996), pp. 332-42.
36. See Colin Campbell and Maureen Berry, "Back to the Future: Is It Time to Put Revenue Canada into Commission?" Canadian Tax Journal 43, no. 6 (1995), pp. 1901-1915.
37. For example, the federal government has accepted some constraints on its independent authority to alter the GST base as part of the new Harmonized Sales Tax with three Atlantic provinces: see Canada, Harmonized Sales Tax. Technical paper issued jointly by the governments of Canada, Nova Scotia, New Brunswick, Newfoundland and Labrador (Ottawa: Supply and Services Canada, 1996).
38. The classic exposition of this so-called "flypaper effect" is Edward Gramlich, "Intergovernmental Grants: A Review of the Empirical Literature," in Wallace E. Oates, ed., The Political Economy of Fiscal Federalism (Lexington, Mass.: Lexington Books, 1977).
39. This discussion assumes that the much-discussed "conditionality" imposed by the Canada Health Act had little real effect in constraining provincial freedom.
40. See Michael Smart and Richard M. Bird, "Federal Fiscal Arrangements in Canada: An Analysis of Incentives." Discussion Paper No. 8, International Centre for Tax Studies, University of Toronto, November 1996.
41. See Michael B. Devereux, "Multiple Debt Issues within a Monetary Union: Does Provincial Debt Affect the Canadian Dollar?" in Richard G. Harris, ed., Deficits and Debt in the Canadian Economy (Kingston: John Deutsch Institute for the Study of Economic Policy, 1993).
42. In a sense, of course, this is an unfair comment, since the traditional literature on fiscal federalism is clearly normative, not positive, in content and intent. In the present context, however, the comment seems fair, since what we wish to emphasize is the limited guidance afforded by that literature in assessing or understanding the real world of federal-provincial finance in Canada.
43. See Albert Breton, "The Federal-Provincial Dimensions of the 1973-74 Energy Crisis in Canada," in Oates, The Political Economy of Fiscal Federalism, p. 112.
44. Contrast, for example, the early resolution, subsequently basically unquestioned, of the formula apportionment issue with respect to corporate taxation in Canada with the continued debate on this question in the United States: see Richard M. Bird and Donald J.S. Brean, "The Interjurisdictional Allocation of Income and the Unitary Tax Debate," Canadian Tax Journal 34, no. 6 (November/December 1986), pp. 1377-1416.
45. See Linda McQuaig, Behind Closed Doors (Toronto: Viking, 1987); for a more analytical view of the tax-policy process, which similarly stresses its essentially "closed" nature, see David Good, The Politics of Anticipation: Making Canadian Federal Tax Policy (Ottawa: School of Public Administration, Carleton University, 1980).
46. See Linda McQuaig, Behind Closed Doors (Toronto: Viking, 1987); for a more analytical view of the tax-policy process, which similarly stresses its essentially "closed" nature, see David Good, The Politics of Anticipation: Making Canadian Federal Tax Policy (Ottawa: School of Public Administration, Carleton University, 1980).
47. An interesting recent manifestation of this line of thinking may be found in Dan Usher, The Uneasy Case for Equalization Payments (Vancouver: The Fraser Institute, 1995).
48. For a useful survey of the confusion prevailing as of October 1997, see Enid Slack, "The Harris Government and Municipalities: Who Does What and Who Pays for It?" Paper presented to the Centre for Study of State and Market, University of Toronto, 10 October 1997.
49. See Andrew Sancton, Governing Canada's City-Regions (Montreal: Institute for Research on Public Policy, 1994).