Canadian “Fiscal Federalism”
Canada is a federal state with governing powers divided between the
central authority and the ten provinces and three territories.
Municipalities provide a third level of government, whose powers are
determined by the provincial legislatures. Understanding the fiscal
interaction of the various levels of government is central to understanding
the nature of government expenditure in Canada. In this section, we
examine the concept of fiscal federalism; in the next section we examine
how fiscal federalism affects the operation of Canada’s social programs.
The Logic of Fiscal Federalism
The essence of Canadian fiscal federalism is the recognition that Canada
is a country with many different fiscal authorities (federal, provincial, and
municipal governments) that need a certain amount of coordination to be
responsive to the needs and desires of the citizens—who are free to move
from one area to another. Four main considerations are important in
understanding Canada’s system of fiscal federalism.
- Differences in Tax Bases
Canadian provinces vary considerably in terms of their average levels of
prosperity. Alberta and Saskatchewan are currently well above the
national average (as measured by per capita GDP), whereas Prince