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Reforming Fiscal Federalism and Local Government

Beyond the Zero-Sum Game

image of Reforming Fiscal Federalism and Local Government

This book describes and examines reforms of fiscal federalism and local government in 10 OECD countries implemented over the past decade. The country chapters identify common patterns and factors that are conducive to reforms of the intergovernmental fiscal framework, using a common methodological approach. The summary chapter highlights the cross-cutting issues emerging from the country chapters and shows the key factors in the institutional, political, economic and fiscal areas that are supporting reform success. The report’s approach results in valuable insights for policy makers designing, adopting and implementing fiscal federalism and local government reforms.

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Canada: The equalisation reform

In 2007, the Canadian government reformed its federal-provincial fiscal equalisation system. Equalisation was simplified, the distribution formula overhauled, and total equalisation payments were no longer subject to a cap. The national fiscal capacity standard was redefined, including a new assessment of provincial revenues from natural resources. The reform, considered as one of the farthest-reaching since the inception of the scheme in 1957, was meant to appease some long-lasting controversy between the federal government and the provinces as well as among the provinces (). Overall, it led to considerable spending increases for the federal government, in large part driven by the interaction of the new formula with record oil prices. After the financial and economic crisis struck in 2008, the reform was revisited and total federal equalisation payments were again submitted to a ceiling.

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