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2020 ; ä (ä): 1-7
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COVID-19, Fiscal Federalism and Provincial Debt: Have We Reached a Critical
Juncture?
#MMPMIDC7330280
Hanniman K
Can J Polit Sci
2020[Jun]; ä (ä): 1-7
PMIDC7330280
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In 2019, Canada's gross subnational debt to GDP was well over 40 per cent, easily
the highest in the world (see Figure 1). 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 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.