Since the publication of Watson (1986) it has been accepted that the efficiency gains from the Canadian equalization system are small compared to the costs. In this paper, we reassess this result, making the point that gains from the reallocation of labour arise from the total migration of...

We test the hypothesis that the flypaper effect can arise if the recipient government finances part of its expenditures with a distortionary tax. We present a simple theoretical framework that shows how a lump-sum transfer stimulates the marginal expenditures of a recipient government through an...