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IMFG focuses on the finance and governance issues faced by cities and city-regions in Canada and internationally.

Nov 24, 2021, 6 tweets

1/ Federal-provincial equalization may be a topic of much debate in Canada, but an equal or greater economic case can be made for equalization transfer payments between provinces and municipalities.

2/ In a new paper, the late Richard M. Bird and IMFG Director Enid Slack review the current state of provincial-municipal equalization transfers in Canada and suggest ways to improve their design. They argue that no province provides adequate equalization for municipalities.

3/ Just as the federal government provides equalization transfers to ensure that all provinces can provide a comparable level of service at a comparable tax rate, provinces should ensure that all municipalities in the province can do the same.

4/ While some provinces offer municipalities conditional grants, a proper equalization transfer system requires a guaranteed, adequate revenue flow that allows municipalities to spend the funds as they choose.

5/ The authors take a critical look at the mechanics of such a transfer, and how it should ideally operate. Issues that first need to be resolved range from determining how local needs are calculated to ascertaining how municipal fiscal capacity is measured.

Fin/ Bird and Slack conclude with some suggestions for what is needed to devise fair, efficient, and transparent provincial-municipal equalization systems. The one-pager shows six specific issues they think need to be considered to improve design.

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