COVID-19, Fiscal Federalism and Provincial Debt: Have We Reached a Critical Juncture?   [open pdf - 249KB]

From the Introduction: "In 2019, Canada's gross subnational debt to GDP [gross domestic product] was well over 40 per cent, easily the highest in the world[.] This level will only grow as the provinces grapple with the pandemic and its fiscal effects. Some believe surging provincial debts have brought Canadian federalism to a critical juncture: they have greatly increased the odds of federal measures to stabilize provincial finances. This article assesses this claim. The cleanest and most balanced path to fiscal sustainability is a combination of enhanced federal transfers, which would bolster provincial fiscal capacity, and national fiscal rules, which would constrain provincial borrowing. But the former is unlikely to restore sustainability on its own, and the latter would require a severe provincial debt crisis, which Canada's existing fiscal federal structures can avoid. COVID-19 [coronavirus disease 2019] has increased the odds of certain reforms, and it is difficult to predict their long-run effects. But any obvious paths to fiscal sustainability remain hidden."

2020 Canadian Political Science Association (l'Association canadienne de science politique) and/et la Société québécoise de science politique. Posted here with permission. Document is under a Creative Commons license and requires proper attribution and noncommercial use to be shared: [http://creativecommons.org/licenses/by/4.0/].
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