Fiscal Federalism and Public Service Provision in Canada

Jean-François Tremblay
JEL codes: 
Policy Research Institute, Ministry of Finance, Japan, Public Policy Review, Vol.3, No.1, December 2007

This paper provides a general overview of the allocation of revenues and expenditures across levels of governments in Canada and discusses how public services in specific areas are financed and delivered. In doing so, the paper draws attention to a number of important characteristics of the Canadian federation and of its evolution in the post-war period as well as in recent years. In particular, the discussion highlights the relatively high and increasing degree of decentralization of the Canadian federation, reflected through the rising importance of provincial revenues and expenditures in the last five decades and the recent devolution of some provincial responsibilities to local governments, among other things. The discussion also illustrates the significant overlap of taxation powers and expenditure responsibilities across the three levels of government.
The paper is divided into five sections. The first section briefly describes the constitutional allocation of responsibilities of each level of government. The second section looks at some of the trends in the revenues and expenditures by levels of government, as well as intergovernmental transfers in the post-war period. In the third section, the sources of revenues are examined. The fourth section describes the allocation of expenditures in each area and discusses how some of the main public services are financed and delivered. The last section further examines the role of municipal governments by briefly discussing the budgetary process at the municipal level and by providing a succinct overview of the recent devolution of provincial responsibilities to municipalities in Ontario.