More on equalization

In a previous post I applauded the idea of removing non-renewable resources from equalization. I stand by the opinion I expressed earlier, but, for anyone interested, there is a paper worth reading on an alternative model. Prof Paul Boothe from the University of Alberta (1998) writes:

...Provinces will not willingly accept the undoing of the decentralization that has occurred over the past three decades. If that is the ultimate federal goal, Canadians are in for a long war of attrition. The forces of global competition and the growth of north-south trade, both underlying causes of decentralization, show no signs of abating. Thus, the need to adapt our federation and its transfer system to these realities is unlikely to disappear, despite the fervent wishes of some for a return to the good old days of dominant central government.

Our proposed reform has four distinct parts:
1. Combine equalization, the CHST [Canada Health and Social Transfer], and regional differences in EI to arrive at total transfers.
2. Transfer the required PIT [personal income taxes] tax points to eliminate vertical fiscal imbalance.
3. Create a net interprovincial equalization pool that leaves all provinces deficit neutral at the outset.
4. Use a macro formula to calculate contributions and withdrawals from the pool in the future.

Prof Boothe's paper can be found here.

Thanks to Marc Lee for bringing this to my attention. Marc adds some interesting insight on this subject over at Relentlessly Progressive Economics.

Still, I stand by my earlier comment. Further, until I catch up on my reading I'll be quiet on this subject!