Thread by @trevortombe

The “fiscal stabilization” program might soon be changed by the federal government. Reform is long overdue. I wrote a paper through @IRPP that explains the program and lays out options. Released today! irpp.org/research-studi… #cdnpoli #cdnecon

The history of such programs is important. I document that the cap — of $60/person, which is Alberta’s main point of concern — was implemented with little analysis and even less thought. Absent a clear justification for it, the case to scrap the cap is strong.

Also, I believe this is the first time the data behind the stabilization payments has ever been provided. Not only interesting, but necessary to calculate all the reform options. Big thanks to all the dedicated public servants both in Alberta and Federally for providing it.

So, coles notes summary of the paper. Stabilization matters because it shares risk between provinces. And opportunity for risk pooling is higher than ever as divergence between growth rates is large and increasing. (No, this is not just oil.)

And it’s a program that, in principle, any province can benefit from. Here’s all the payments ever made.

Notice the first payment to BC. That $60/capita was the sole basis for the cap implemented in 1987. Cap affected 4 later payments.

I document the discussion in parliament. No one really cared about the cap, and it was pitched as a mere admin change. Today we see it matters a lot. Here’s the two Alberta payment calculations. You can see all the steps, and how cap binds. (I describe each step in the text.)

I go through a variety of simple reform options to the current program in the paper. Check it out! 👍🤓

A common concern is: AB is rich, they should just have a sales tax. Yeah, that’s a strong point. And paying them might encourage more risks. I propose two big reforms that take moral hazard concerns really serious: fiscal capacity stabilization and macro-based stabilization.

These are more fundamental reforms and would require further study and examination by the federal government. I recommend the Feds do that, in addition the short term easy changes to the current formula.

Won’t spoil more of the surprise. So check out the paper! Enjoy!