As the Table indicates, there has been agradual decentralization of spending responsibilities from the federalgovernment to the provinces over the post-war period. In the early 1960s,almost sixty percent of government spending was by the federal government,while by the end of the century that had been reversed. Indeed, had onlygoods and services been included in government spending, the decentralizationwould have been even more dramatic, given the relative importance of transfersas a component of federal spending.
There are a number of potential reasons forthis turnaround in responsibilities. Provincial expenditureresponsibilities happen to be in areas of growth in spending. Canadianprovinces have exclusive legislative responsibility in the key areas of health,education and social services, and these have grown at relatively high rates inmost countries. At the same time, some of the traditionally importantfederal spending responsibilities such as defence have not grown so rapidly, oreven declined. Changes in federal transfers to the provinces mightthemselves be partly responsible for the decline in the relative share of thefederal government. To see how important this might have been, we cancontrast the results with and without intergovernmental transfers.
Shares Excluding IntergovernmentalTransfers
As the table indicates, excludingintergovernmental transfers from the public sector spending enhances the shareof the provinces relative to the federal government in all years. Federalshares tend to be 4-5 percentage points less and provincial shares the sameamount more when intergovernmental transfers are removed. This is asexpected, given that it is federal spending that is reduced by thechange. The removal of intergovernmental transfers does not itself seemto have much effect on the downward trend of the federal share: it simplyincreases the provincial share in all years by roughly the same amount inpercentage terms.
The extent of decentralization of spendingresponsibilities is not unusual among other federations. Comparablespending shares of regional governments would be found such federations asAustralia, Belgium and Germany. In fact, even some unitary states havereasonably high levels of spending at the regional government level, such asJapan or the Scandinavian countries. Of course, levels of spending mightnot be a perfect indicator of the degree of decentralization. Differentdegrees of discretion could be associated with decentralized spending.Moreover, these degrees of decentralization may not be found on the revenueside, to which we turn below.
Before turning to the revenue side, it isworth mentioning that the shares of federal and provincial spending actuallyvary considerably across provinces. As Tables 1 and 2 in the Appendixindicate, federal government shares are substantially higher in lower-incomeprovinces than in higher-income ones. The share of federal spendingincluding (excluding) intergovernmental transfers range from about 60 (53) inthe Atlantic Provinces to 45 (41) percent in the four western provinces.It is perhaps a bit surprising that these big differences persist, given thatthe purpose of the transfers is to enable the provinces to provide comparablelevel of public services. Even when federal-provincial transfers areexcluded, expenditure seems to be more decentralized in the better offprovinces, perhaps reflecting greater concentrations of federal spending in thelower-income provinces.
2. Federal and Provincial Government Sharesof Total GovernmentRevenues
Table B.2 gives federal and provincialgovernment shares of total government revenues for the same four decades.As with spending, a distinction must be made between revenues including andexcluding intergovernmental transfers. In this case, it is the recipientgovernment that is most affected, and in particular, the provincialgovernments. Revenues excluding intergovernmental transfers representonly own source revenues (mainly taxation) and not the substantial transfersthe provinces receive from the federal government.
Table B.2: Federal and Provincial Government Shares of TotalGovernment Revenues (Percentages)
Table B.2: Federal and Provincial GovernmentShares of Total Government Revenues (Percentages)
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