The Stabilization Properties of Equalization: Evidence from Saskatchewan

Abstract

Although it has been only two years since the last renewal of equalization, the program that is at the center of Canadian fiscal federalism has been much in the news of late. In part, this may be a reflection of the fact that the last renewal was a low-key exercise that focused mainly on technical issues or perhaps because Canada is currently on the downside of the business cycle. In any event, recently both provincial and federal politicians have decided to engage in a public and sometimes acrimonious discussion of equalization.

A number of issues have been raised as part of the public debate. The first has to do with the growth and coverage of the equalization program itself. Provincial and Territorial Finance Ministers have been urging the removal of the equalization ceiling and for a return to a ten-province rather than the current five-province standard? The fiscal capacity of the receiving provinces and how they will cope if Alberta and Ontario continue to reduce taxes is another issue being discussed. Finally, Nova Scotia, and more recently Newfoundland, have argued for an ad hoc change to the program to allow them to benefit more fully from offshore energy development.