Posts Tagged ‘federalism’

Federalism and Canada

Wednesday, May 30th, 2012

Chris Edwards, writing on We Can Cut Government: Canada Did, brings up a very important point,

THE FEDERALISM ADVANTAGE

One of Canada’s strengths is that it is a decentralized federation. The provinces compete with each other over fiscal and economic matters, and they have wide latitude to pursue different policies. Federalism has allowed for healthy policy diversity in Canada, and it has promoted government restraint.

Government spending has become much more centralized in the United States than it has in Canada. In the United States, 71 percent of total government spending is federal and 29 percent is state-local. In Canada it’s the reverse — 38 percent is federal and 62 percent is provincial-local.

The federalism difference between the countries is striking with regards to K-12 education. While federal control over U.S. schools has increased in recent decades, Canada has no federal department of education. School funding is left to the provinces, which seems to work: Canadian school kids routinely score higher on international comparison tests than do U.S. kids.

The countries also differ with regards to the amount of top-down control exerted on subnational governments through federal aid programs. The United States has a complex array of more than 1,000 aid-to-state programs for such things as highways and education. Each of these aid programs comes with a pile of regulations that micromanage state and local affairs.

By contrast, Canada mainly has just three large aid programs for provincial governments, and they are structured as fixed block grants. It is true, however, that one of these grants helps to fund the universal health care system, which is a big exception to the country’s generally decentralized policy approach. Nonetheless, having just a few large block grants is superior to the U.S. system of a vast number of grants, each with separate rules and regulations.

A final federalism advantage in Canada is that provincial and local taxes are not deductible on federal individual tax returns. That structure promotes vigorous tax competition between the provinces. In the United States, state and local income and property taxes are deductible on federal income tax returns, which has the effect of blunting competition by essentially subsidizing hightax states and cities.

Go read the whole article.