Natural Resource Shocks and the Federal System: Boon and Curse?

Abstract

The most stunning development affecting Canadian fiscal federalism in recent years has been the unprecedented oil and gas boom in Alberta and to a lesser extent its neighboring provinces. This has led to an ongoing shift of economic activity and of people to Alberta, and a level of horizontal imbalance between Alberta and the rest of Canada that is beyond the capability of the equalization system to address. Moreover, there is the prospect for a great deal of possibly painful restructuring of industry elsewhere, including the manufacturing sector in central Canada. The purpose of this paper is to speculate on the implications of a major regional oil and gas boom—or any resource boom for that matter—for fiscal federalism and the operation of the decentralized Canadian federation.