Evaluating the efficiency and equity of federal fiscal equalization

Research output: Contribution to journalArticlepeer-review


Theoretically, federal transfers that make household location decisions efficient should ignore local cost differences, subsidize positive externalities, and offset differences in federal-tax payments and local taxes levied on non-residents, but not local tax revenues from residents. Transfers that redistribute resources equitably across regions will likely target areas with individuals of low earnings potential or low real incomes. Applying these criteria empirically, Canadian equalization policy appears neither efficient nor equitable, but exacerbates pre-existing inefficiencies and underfunds minorities. Locational inefficiencies cost Canada 0.41% of income annually and cause over-funded provinces to have populations of 30% beyond their efficient long-run levels.

Original languageEnglish (US)
Pages (from-to)824-839
Number of pages16
JournalJournal of Public Economics
Issue number9-10
StatePublished - Oct 2012
Externally publishedYes


  • Compensating wage differentials
  • Cost-of-living
  • Federal taxation
  • Fiscal equalization
  • Horizontal equity
  • Source-based and residence-based taxes

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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