Fiscal Arrangements for Maintaining an Effective State in Canada

Abstract

Canada is a large and regionally diverse country. Over the years complex intergovernmental fiscal arrangements have been developed in order to permit relatively uniform treatment of people living in very different provinces. These arrangements have on the whole been successful in delivering services effectively to a diverse population, but they have more likely perpetuated than reduced regional economic inequality. From a political perspective, the results have been equally mixed. The system has worked in that the country has stayed together, grown respectably, and treated most citizens well and surprisingly uniformly. But the way in which this success has been achieved has reduced Canada's ability as a state to cope with the rapidly changing world environment and may, in the end, have strengthened rather than weakened regional separatism. Despite Canada's considerable success to date in adapting its system of fiscal federalism to cope with both political and economic imperatives, it thus remains unclear how long this fiscal juggling act can be continued without some more basic change in political institutions.