ECON 318 Lecture Notes - Lecture 10: Territorial Formula Financing, Hp 30B
9 Jul 2016
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Equalization - functioning: mechanics of the system. For simplicity we will assume that all public revenue comes from income taxation. A is a have" province and b is a have-not", on the basis of per-capita income of ,000 and ,000 respectively. Table 1 a two-province example of the canadian equalization program. The core of the equalization program is the formula for transferring: This formula yields the following shortfall s for province. The tax rate of 0. 238 is obtained as the ratio 31/130. The shortfall for region a would be the negative of this amount indicating that the wealthier province might have to pay rather than receive. Next we must convert this shortfall" into an. This is done by the federal government making transfers out of its general revenues to the have-not" provinces. It does not levy any additional tax on the have" provinces specifically for this purpose - they pay only indirectly through the federal system, just as do the.
