The Interregional Incidence of Public Budgets in Federations: Measurement Issues, Evidence from Canada, and Policy Relevance

Francois Vaillancourt and Richard M. Bird ()
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Francois Vaillancourt: Departement de sciences ecomiques, Universite de Montreal

No 510, International Tax Program Papers from International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto

Abstract: In this paper, we examine the issue of the incidence of central government budgets in federal countries. In Section 1, we discuss a number of reasons why the picture painted of reality by even the best fiscal flow analysis is inevitably partial and hence inherently flawed to an unknowable extent. Despite these cautions, in Section 2 we review the evidence on the regional incidence of federal budgets in Canada, considering both aggregate results and some specific federal expenditure programs (e.g. equalization and employment insurance), as well as some relevant issues (e.g. the regional effect of some regulatory programs) not depicted in fiscal flows. We find that the regional distributional patterns revealed in this analysis are both robust to various reasonable adjustments and relatively stable over time. Nonetheless, we conclude in Section 3 that, while such studies are potentially useful in terms of providing a base-line for assessing performance in some respects, they cannot be used to demonstrate that e.g. one region is paying (or receiving) 'too much' or 'too little', let alone that there is a 'fiscal imbalance' that needs to be corrected. Numbers are necessary, and good numbers are better than bad ones; but they have to be interpreted carefully and in context before drawing any policy conclusions.

Keywords: regional fiscal flows; regional incidence; fiscal balance; Canada (search for similar items in EconPapers)
JEL-codes: H19 R51 P43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo
Date: 2005-04
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