Fiscal Imbalance

… a core term used in Governance and Institutions and Atlas100

Definition

BusinessDictionary (reference below) defines fiscal imbalance as occurring when all of a government’s future debt obligations are different from its future streams of income. However, in Canada the term is usually used to refer to imbalances within the federation.

Writing in the Canadian Encyclopedia (reference below) Tom Courchene describes the two kinds of fiscal imbalance that can arise in a federation:

  1. Vertical imbalance – imbalance between the national and provincial levels of government (for example, when the responsibilities of provinces are disproportionately large compared with their share of the revenues). Such an imbalance can be remedied by a transfer of responsibilities from one level to another (as was done in Canada when responsibilities for family allowances and unemployment insurance were transferred to the federal government) or by transfer of revenues.
  2. Horizontal imbalance – fiscal imbalance among the provinces themselves (the fact that some provinces have more sources of revenue and are therefore richer than other provinces). Equalization payments can help adjust horizontal imbalances.
Additional resources

Brian Doody (2007), Fiscal Imbalance Debate: Origins and Perspectives, Mapleleafweb, at http://mapleleafweb.com/features/fiscal-imbalance-debate-origins-and-perspectives, accessed 3 September 2007.

Jeffrey Simpson (2015), Today’s fiscal imbalance is real, not imagined, Globe and Mail, 12 May 2015, at http://www.theglobeandmail.com/opinion/todays-fiscal-imbalance-is-real-not-imagined/article24398966/, accessed 3 September 2016.

Atlas topic, subject, and course

Federalism (core topic) in Governance and Institutions and Atlas100 Governance and Institutions.

Sources

BusinessDictionary, fiscal imbalance, at http://www.businessdictionary.com/definition/fiscal-imbalance.html, accessed 3 September 2016.

T.J. Courchene (2006), Equalization Payments, Canadian Encylopedia, at http://www.thecanadianencyclopedia.com/en/article/equalization-payments/, accessed 3 September 2016.

Page created by: Ian Clark, last modified 3 September 2016.