Reconciling Diversity with Equality: The Role of Intergovernmental Fiscal Arrangements in Maintaining an Effective State in Canada

Regional diversity may influence the nature and effectiveness of public sector activities through many economic and political channels. The most important and prominent manifestation of diversity in Canada has been the rise to dominance in the largely francophone province of Quebec of a political party advocating secession, but regional differences and tensions in Canada are by no means confined to Quebec. In particular, the rise of the western provinces -- particularly Alberta and British Columbia -- as separate and important players on the Canadian political and economic scene was almost as marked a feature of the last third of the 20th century as the consequences of Quebec’s “revolution tranquille” since the 1960s. More recently, since about 1990, the key central province of Ontario has also begun to separate itself to some extent from Canada as a whole in a way that it has never done before in Canadian history. The last half of the 20th century was a turbulent period in Canadian politics. The first part of the 21st century seems unlikely to be calmer, as the continental integration of the Canadian and U.S. economies continues to re-orient Canadians in a “north-south” rather than “east-west” direction. Section 1 of the paper looks at how the federal government has attempted to accommodate the rise of Quebec, and to a lesser extent, Western unrest, through changes in intergovernmental fiscal arrangements. In Section 2, we sketch the nature and size of the fragmentation problem in Canada, tracing how some of the key dimensions of regional diversity have evolved over the last half-century or so. In Section 3, we set out some developments in Canadian fiscal federalism during this period that both reflected and shaped the factors discussed in Section 2. Section 4 assesses whether the intergovernmental fiscal arrangements developed in the last half of the 20th Century have helped or hindered the maintenance of an effective state in Canada. We conclude by suggesting that more than changes in fiscal institutions may be required if Canada is to continue to cope with the problems regional diversity creates for maintaining and effective state in its vast and diverse territory.