Fiscal situation of Canada’s ‘oil rich’ provinces
I’ve just written a blog post about the fiscal situation of Canada’s ‘oil rich’ provinces (i.e., Alberta, Saskatchewan and Newfoundland and Labrador). It consists of a summary of key points raised at a PEF-sponsored panel at this year’s Annual Conference of the Canadian Economics Association.
Points raised in the blog post include the following:
-The price of oil is impossible to accurately predict, and there’s no guarantee it will rise to past levels.
-Each of Canada’s ‘oil rich’ provinces should therefore find other ways of financing future spending.
The full blog post can be found here.
Counter-cyclical fiscal policy will often require the federal government to be in deficit in order to sustain the economy and support provincial budgets.
See Fiscal federalism: US history for architects of Europe’s fiscal union
http://bruegel.org/2012/01/fiscal-federalism-us-history-for-architects-of-europes-fiscal-union/
“(p.4)……states in the US can abide by strict budget
balance rules to the extent the federal government is responsible for stabilisation and the bail-out of insolvent banks, but this simple lesson is sometimes overlooked in European discussions.
(p.23) Fiscal transfers from the federal government directly into state budgets, to help them fulfill federal mandates and otherwise alleviate budget pressure, ameliorate the procyclical influence of the states during downturns
.
(p. 23 – 25 )”In sum, the federal government (1) is the only level that provides significant stabilisation during recessions, while the states are likely to be procyclical, and (2) injects federal money into state programmes directly. Both roles render the balanced budget rules at the state level more sustainable than they would be in the absence of the federal government and its fiscal system.”
(p.30) Since the 1930s, the federal budget has helped to stabilise the national economy in countercyclical fashion. Without this, state-level restrictions would have been difficult or impossible to sus-tain.”