committed to the principle of making equalization

payments to ensure that provincial governments

reasonably comparable levels of public services

at reasonably comparable levels of taxation.

(Constitution Act, 1982, section 36(2).)

The Constitution Act of 1982 enshrines the principle of equalization payments from ¡°have¡± to ¡°have not¡± provinces to ensure that Canadians, no matter where they live, have access to comparable levels of public services at comparable rates of taxation. In reality, just two ¡°have¡± provinces-Ontario and Alberta-contribute equalization funds to 5 ¡°have not¡± provinces-the 4 Maritime Provinces and Quebec. Is it fair for people in those two ¡°have¡± provinces? Is equalization payment efficient? Does it achieve equity?

The purpose of this paper is to reassess equalization payment from an economic perspective and exam equalization payment from two major angles: efficiency arguments with incentive effect, and equity criteria. Equalization payments have the original purpose to eliminate the inefficiency of labor migration in a decentralized federation and to provide comparable level

Robin suggests that persons ought to be treated comparably by all levels of government taken together. Applying horizontal equity to taxation, it follows that equals should be taxed equally in federal and provincial taxation. Then it follows that people in different provinces should pay the same rates of tax for the same quality of public services. Equalization is to provinces as horizontal equity is to people. In ¡°The Uneasy Case for Equalization Payment¡±, Dan Usher questions ¡°Can one be sure that the benefits of horizontal equity in taxation extend automatically to equalization payments?¡± Usher argues that for a stable and democratic society, each level of government should treat like citizens equally. For the federal government to enforce fiscal equity nation-wide, redistribution from high-income region to low-income region is required, which may raise potential instability in society, and leave the possibility of squabbling and disputes among provinces.

In reality, people may not be that responsive to net fiscal benefit since moving across provinces brings costs and other trouble, like career reallocation. So even though the static deadweight loss arising from inefficient migration tends to be small as most measures estimated, cumulatively over a longer period of time, the cost may be significant.

Some topics in this essay:
Maritimers Poschmann, Day Winer, Robin Boadway, Incentive Effect, Provinces Quebec, Dan Usher, Equity Canadian, Constitution Act, Introduction Parliament, equalization payment, net fiscal benefit, fiscal benefit, net fiscal, tax bases, public services, tax rate, ¡°have not¡±, real wage, equalization payments, tax rates, comparable levels public, ¡°have not¡± provinces, levels public services, fiscal benefit equalized,