Federalism and Fiscal Policy: The Politics of Equalization in Canada

Fiscal equalization is a key political issue in many federal countries, including Canada. Yet, relatively few scholars have paid systematic attention to the political dimensions of Canada’s federal equalization program. Taking an historical and institutionalist perspective, this article explores the politics of equalization policy in Canada, with a focus on the mid-2000s, a period when equalization policy suddenly became a major source of intergovernmental conflict. The main objective of the article is to explain why and how such political struggles over equalization developed. The explanation focuses on four factors: (i) the importance of executive discretion over the equalization program; (ii) the “inter-state” nature of Canadian federalism; (iii) the concentration of non-renewable natural resources in certain provinces; and (iv) the perceptions that surround the program.